Impact of e-commerce on Retail Trends
The impact of e-commerce on retail is increasing every year, as traditionally bricks and mortar retailers are embracing the inevitable shift in how consumers buy. One good example of how a bricks and mortar retail giant has embraced online shopping is Lowe's. The home improvement chain saw 2011 overall sales growth of only 2.9%, but its online sales jumped 70% from the prior year. For the same period, its comparable-store sales for its physical locations was flat. Not surprisingly, Lowe's CEO Robert Niblock is focusing a lot of attention on online sales strategies for the home improvement giant. An interesting shift in terms of strategy is that many of the top retailers that used to look at the internet as a way to generate more in-store sales are now turning that equation around. Most are now trying to figure out how to use stores to fuel online sales.
One of Lowe's acquisitions last year was ATG Stores, an online retailer operating over 500 home improvement "microsites". Although Lowe's says ATG's contribution to Lowe's online sales growth in 2011 was negligible, it is a clear indication of how serious the chain is about e-commerce.
Lowe's is not the only retailer seeing online sales take center stage. Overall, almost 90% of the chain retailers ranked in the Internet Retailer Top 500, saw internet sales grow faster than any of their other sales channels in 2011. A full dirty dozen of the Top 500 had at least 20% of total sales generated from internet sales, while 5 of these chains saw more than 30% of their sales initiated online. These very well-known retailers with outlets across the country included Staples, OfficeMax, dELiA*s, Williams-Sonoma, and Office Depot.
Online sales have grown to the point where they would be the equivalent of quite a few physical locations for many retailers. For Staples, the largest retailer of office supplies, its 2011 online sales generated $10.6 billion, which is as much revenue as 1,687 of its stores generated. That is almost 74% of its locations to equal its online sales.
One of the retailers impacted significantly by e-commerce has been Best Buy, which has plans to close around 50 stores and to grow its online revenue. It has been one of the biggest victims of what has come to be known as "showrooming". Showrooming is when consumers go to a retail store just to "handle" the merchandise, with no intention of buying it in the store. Rather, they use the store as a showroom to check out merchandise in person, then shop online to find a lower price. The practice is more common with items that consumers feel need to be touched, felt and experienced to help them determine if it's a product they would want. Electronics, because they are so widely varied, and sometimes complex, are one of the categories of products that consumers seem to watch to touch before they buy, but they still want to get the lowest possible price. Amazon is Best Buy's best known, and largest, competitor that sells electronics online and while Best Buy's online sales in 2011increased 18%, to $2.95 billion, the company's total sales only went up by 1.9%. For 2011, Best Buy's comparable-store sales actually dropped by 1.7%.
Target president and CEO Gregg Steinhafel and executive vice president of merchandising Kathee Tesija have come out against the showrooming practice recently saying, "What we aren't willing to do is let online-only retailers use our bricks-and-mortar stores as a showroom for their products and undercut our prices." Target has gone so far as to send letters to vendors asking them to give Target lower prices and exclusivity on certain items, so consumers won't be able to find the same products at lower prices online. How those letters were received remains to be seen.
The trend of shoppers dollars shifting from changing hands with retailers in stores to more online shopping does not appear to be one that is going to reverse direction and go back to the time where stores were where most of the money changed hands. The question for retailers is how they will adapt to the "new normal". Most of the biggest retailers have been around for many years and have survived many market changes, so it will be interesting to see how they handle this one.