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US eCommerce Sales For the 2012 Holiday Shopping Period and Predictions Concerning the Death of Bricks and Mortar Retail in Ten to Fifteen Years TimeJanuary 3, 2013
With Christmas 2012 just a fading memory, Comscore has announced the revenue results for the holiday shopping season that has just passed. But as a background here is some historical data on eCommerce growth. eCommerce share of retail has been growing steadily since its inception (http://www.startable.com/2008/11/03/is-the-us-retail-industry-peaking-as-a-of-total-retail-spending/).
Just in the post four years since 2008, the share of online retail as a percent of total retail sales has more than doubled to around 8%. E-commerce B2C product sales totaled $142.5 billion, representing about 8% of retail product sales in the United States according to a Forrester research report in 2011. Forrester Research estimated that the United States online retail industry will be worth $279 billion in 2015 (http://en.wikipedia.org/wiki/Online_shopping#Market_share).
Thus eCommerce has been growing fairly rapidly year over year, so the question concerning the 2012 holiday shopping data wasn’t whether it would grow since last year, but rather, how much? Would growth be more than last years, about the same, or less than last years. And the answer was? About the same.
“U.S. consumers spent $42.28 billion online in November and December, a 13.7% increase over $37.17 billion spent during the holiday shopping season in 2011, comScore Inc. reports today. Meanwhile, sales at U.S. chain stores, not including drug stores, increased just 3.1% year over year in the same period.”
So eCommerce, while not threatening the overall dominance of bricks and mortars stores any time soon, is nevertheless taking an ever increasing share of the pie. At this rate it is just a matter of time before eCommerce becomes the dominant retailing channel. We can demonstrate this with the following simple forecasting exercise.
Let’s say that eCommerce was 10% of the overall retail pie. It’s actually a bit less than that but close enough for our purposes. Then assume that general retail (other than eCommerce) grows at roughly the inflation rate ofabout 3% a year. Assume that eCommerce keeps posting a steady year on year increase of 12% per year. How fast would eCommerce catch up to general retail at those rates?
On the face of it you’d think that a 12% growth rate would catch up to a 3% growth rate pretty fast, but you have to remember that 3% of 90% (2.7%) is actually bigger than 12% of 10% (1.2%) so that overall revenue growth (not rate) is actually in favor of general retail, and as a result the relative share of eCommerce is actually growing rather slowly. The way that the math works, the relative growth accelerates as the proportion of eCommerce increases. So eCommerce does not seem too much of a threat now, any more than iTunes might have threatened the music industry just after it started or Google threatened the print advertising industry a few years ago, but once eCommerce gets above a 20% share it’s probably a tipping point and watch out!
So here are the forecasts of eCommerce share of overall retail sales at five yearly intervals using 2012 as the assumed based year. I slaved over a hot spreadsheet for this one!
In 2017 eCommerce would have just under 15% of Retail revenues
In 2022 eCommerce would have a share of over 20% of revenues
In 2027 eCommerce would have a share of 28% of revenues
In 2032 eCommerce would have a share of over 37% of revenues
In 2037 eCommerce would gain over 47% of revenues
According to this model eCommerce would gain over half of overall retail revenues for the first time in 2039.
I don’t think it’s going to take that long. I believe that Bricks and Mortar retailing will be on the ropes sometime before 2025. But according to our model regular retail will still have close to three quarters of sales then. Why do I believe that the simple linear model shown above is actually wrong?
Here’s my reasoning. The economies of scale and profitability are going to be running in favor of eCommerce and against Bricks and Mortar. As eCommerce scale and efficiency increases it will be able to offer lower prices and cannibalize an ever increasing proportion of bricks and mortar sales. I think that it is a forgone conclusion that eCommerce will win this battle. It is only a matter of when. But I don’t expect a constant rate of expansion for either bricks and mortar or commerce revenues. I believe that sometime in the next few years (sooner rather than later) bricks and mortar revenues will start dropping, even allowing for inflation), while I expect eCommerce annual growth rates in sales to top 20%. Under that scenario the end will come fairly quickly and retail space will be repurposed into other uses, included eCommerce showrooms.
So here is the prediction. eCommerce will supplant bricks and mortar retail sometime between 2020 and 2030. Retail will fight to keep it’s position, but the battle is already lost. All that can be done is delay the inevitable. The future of retail is showroom stores (think Apple) with the vast majority of sales being made online. Some retailers are already starting to make the switch.
The following table shows the list of top ten US online retailers in 2012 (according to Internet Retailer: http://www.internetretailer.com/top500/list/). It can be seen that there are four bricks and mortar retailers on this list (Staples, Walmart, Office Depot, and Sears). it will be very interesting to watch this list in the next few years to see if bricks and mortar retailers can successfully migrate to the online world. Right now Amazon is a dominant force in online sales and it is not clear to me whether more than a few bricks and mortar merchants can successfully make the transition to an online retail world.
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