Traditional Retailers Losing Turf – Ecommerce Making Inroads? February 2014 BLOG POST
Overview The US retail industry is undergoing paradigm shift in terms of the retail platform that the consumers are flocking too. For long, the traditional brick and mortar retail had foothold on the minds of American consumers, but as time has passed and as savvier online retailers have upgraded their ‘look and feel’ and ‘ease of transaction’, that is where the consumers are flocking, deserting the brick and mortar retailers in the process. This blog takes into account some such changes and shifts and articulates the case examples of a few of those traditional retailers who are forced to take a back-seat. 40
Total Retail Foot Traffic in November and December
30
60,000
56,781
US Retail Online Sales (USD Million) 49,698
50,000 43,432
17.6 Billion
20
39,132
39,045
38,071
40,000
30,000 10
Q4 2012
Q2 2012
Q4 2011
Q2 2011
Q4 2010
Q2 2010
Q4 2009
Q2 2009
2013
Q4 2008
2012
Q2 2008
2011
Q4 2007
2010
Q2 2007
20,000 0
Drivers for the Shift from Brick-and-Mortar to Online Retail • •
Better price and shopping convenience from the comfort of a shopper’s home Brick-and-Mortar retailers have significantly high operational leverage
Is Online Taking Away Sales from Brick-and-Mortar Retailers? The advent of ecommerce in the retail industry had given shoppers the liberty to check out the merchandise in stores and buy online at a discounted rate. Giving rise to the retail phenomenon called “showrooming”. “Best Buy Co. has been plagued by the retail phenomenon called "showrooming," where shoppers examine products in its stores but buy online through rivals. A quarter of shoppers who said they had showroomed had done so at Best Buy, according to a Harris Poll in 2012 ” – The Wall Street Journal
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While online retail is growing at a much faster rate (at about 10 times) the Brick-and-Mortar retail, it still remains a small fraction (at about 11% of all retail spending in the quarter ended December 2013) of the retail industry. But given the speed at which the online retailers are marching ahead, the day is not far when the industry may be equally divided between the online and traditional retail. In the meantime, let’s see what impact has this phenomenon has had on the traditional retailers:
Brick-and-Mortar Retailers Are Adjusting To the New Shopping Trend in Retail Abercrombie & Fitch Abercrombie is looking forward to its website (which currently contributes to 17% of sales) to replace its bricks-and-mortar sales and form a quarter of its total sales. The company is planning to close more than 30% of its US stores, or about 1,000 stores
Sears "Sears is in a steady state of decline, they're essentially selling their body parts so they stay alive today." – Brian Sozzi, Chief Executive, Belus Capital Advisors Reasons for such poor financial condition is not only from losing market share to Walmart and Target, but also due to increased competition from online retailers
J.C. Penney J.C. Penney’s dwindling sales and intense financial woes has made the retailer focus on its ecommerce department to win back web and store customers “J.C. Penney initiated several initiatives to drive web site traffic and sales. Penney launched a new product lineup of toys and clothes for kids from Walt Disney Co.” – Myron Ullman, CEO J.C. Penney
OfficeMax, Office Depot “The office-supply chains are among the victims of the digital age, with too many stores carrying too much inventory in spaces that are too large for the new marketplace.” – The Wall Street Journal OfficeMax and Office Depot, the retailers of pens, paper and desks merged in November 2013 in order to fight competition from Staples and Walmart. Their merger would also help save on costs in terms of their store footprints, workforces and also better leverage with suppliers
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Best Buy Best Buy, revamped its loyalty program that provides its customers with loyalty points when they check in to the store using their phone in addition to points for purchases
Macy’s Macy’s, is set to build its fourth ecommerce warehouse, scheduled to open in 2015. The retailer also caters direct-to-consumer orders from 500 of its 840 stores In January, 2014, Macy’s announced closure of its 5 stores, laying off 2,500 in order to streamline costs. Such changes are being made to generate cost savings of about USD 100 Mn per year
Staples In October 2013, Staples acquired Runa, a specialist in e-commerce personalization technology. Runa is expected to help Staples to venture into the online retail space and help enhance its overall sales. “Runa has a unique platform and outstanding talent with experience in e-commerce and online marketplace” – Ronald Sargent, CEO and Chairman, Staples
Fry's Electronics Fry's Electronics, planned not to open its stores on Thanksgiving but gave its customers the opportunity to book its Black Friday deals on Thursday at its website, Frys.com, calling it Click, Reserve, and Relax Sale. Shoppers had the chance go to a store any time on Friday and pick up their purchase made on Frys.com., thus suggesting a shift in making merchandise available through online channels in addition to its store presence
Gap Inc. Gap has expanded its service that allows shoppers to reserve items online, and then pay and pick them up within 24 hours at many of its Banana Republic and Gap stores Needless to say that the traditional retailers fear the onslaught of online retailers and making sure that they do have the online sales channel too in order to contain and improve their overall growth. Source: All data from secondary sources; Sutherland analysis
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