All is not over for brick-and-mortar retailers
Will physical stores perish from the online onslaught rolling through retailing? Is the competition from Amazon (AMZN) and its digital ilk as inexorable as the Borg in the Star Trek movies, all-powerful alien invaders before whom resistance is futile?
Maybe not. It seems that many folks will continue to prefer seeing and touching what they are considering buying. Forrester Research predicts that online retailing will reach a natural peak within the next 10 to 15 years, reaching as much as 25 percent of total sales.
Still, attaining such a level would mark a significant increase in market share, a bit more than three times the portion that digital shopping occupies now. Along the way, by offering the convenience of shopping at home, it surely would bring some creative destruction to legacy merchants.
Yard by yard, gift by gift, discount by discount, Amazon and its cohorts are cutting into their sales. Expect the upcoming holidays to show even stronger advances for these interlopers, kicking off today on Black Friday.
Two recent financial reports display the stark contrast between conventional and web retailers: Venerable department store chain Macy's (M) reported a lousy third quarter, with sales skidding by 3.6 percent. Its management forecasted an even worse holiday quarter.
But e-tailing colossus Amazon enjoyed double-digit sales growth in the past quarter and projected a boffo year-end season. "Amazon is the dominant global retailer," said Michael Pachter of research house Wedbush Securities. He predicts that Amazon will double its revenues within six years.
Online sales claimed 7.4 percent of the retail dollar in the third quarter, up from 2.8 percent 10 years ago, according to the U.S. Census Bureau. E-commerce, which accounted for $87.5 billion in the September-ending quarter, was ahead 15 percent over the same period in 2014. Brick-and-mortar retailing nudged up just 0.6 percent, year over year.
At present, given sluggish U.S. economic growth, the overall retail pie isn't expanding very rapidly, which means that conventional stores have less room to grow while fending off online incursions. So-called core retail sales, both physical and digital -- which excludes automobiles, gasoline, building materials and food services -- rose 0.2 percent last month after a 0.1 percent increase in September.
That said, certain traditional retailers are better insulated from online competition than others. On the losers' list, by Morningstar analyst Robert Goldsborough's reckoning, are toys, office supplies and consumer electronics. On the winners' list: home improvement and auto parts, where immediate customer needs and knowledgeable sales people provide an advantage.
And don't count out the large department store chains. Instead of meekly enduring punishment, many of them are aiming to co-opt the cyber-threat. They are fighting back by launching their own Internet efforts.
Walmart Stores (WMT), for instance, has poured billions into its digital sales push, and has expanded its items sold online to 7 million, from 1 million three years ago. It has opened four new fulfillment centers to compete with Amazon's vaunted delivery service.
Beyond that, Forrester analyst Sucharita Mulpuru noted in a report that, while e-commerce is growing, "physical retail is far from doomed." Higher-end malls are doing well, and industry shakeouts such as the death of Radio Shack offer standard retailers an opening, she said. Meanwhile, higher shipping prices and taxes for purely web players will crimp their expansion.
An e-commerce saturation point will arrive eventually, Mulpuru predicted. At a retailing convention two years ago, she said, "Be prepared for the party to end, because it has to end at some point.''