In its second-largest acquisition, Amazon buys the company for $970 million.
If I were running a big retail chain I don`t think I`d turn my back on this Internet trend.
In his keynote address at the eTail show in February, Jerry Storch, chairman & CEO of Toys R Us Inc., said he did not think e-retailing would ever grow beyond 10% of retail sales. It’s interesting that the comment comes from the head of the second-largest retailer in a category that is well suited for e-retailing and has witnessed above-average online retail sales. Toys are easily marketed online to consumers who know in advance what they want, and the Christmas gift-giving season is the primary season for both toy buying and online retailing. In fact, Forrester Research, the technology and market research firm, estimates that the web already accounts for 18% of toys and video game sales and predicts that share will grow to more than 30% by 2010.
Telling a group of e-retailers their industry is not going to amount to all that much is like a Presidential hopeful telling Iowa farmers that ethanol is overrated, particularly when this audience of web merchants has just come off their tenth straight year of 25% or greater growth. It that context, Storch’s speech hits more of a sour note than a keynote.
Yet Storch’s projection for e-retailing’s ultimate share of retail sales probably reflects the majority opinion about online retailing that comes from the executive suites of America’s big store-based retail chains. Wal-Mart, Target and the other super chains focus on their primary investment-their bricks-and-mortar stores that are their heritage-and not on their web sites, which for most still account for well under 5% of their total retail volume. Target, where Storch was No. 2 before moving to Toys last year, re-lies on Amazon to run its web business. That says a lot. You don’t farm out an op-eration if you deem it to be a core part of your business.
But if you ask catalogers and web-only merchants what share of overall retailing the web will eventually command, you will most likely hear percentages that run well to the north of 10. These retailers will tell you how their web businesses are exploding. They will point to the changing demographics, growing computer sophistication and hurried lifestyles of shoppers-all of which favor online merchandising. They’ll talk about the trend to broadband, the merger of TV and the Internet, the growth of mobile communications, the increased capabilities of web technology and the cost of driving from one store to the next to find the right sweater in the right color and right size. They’ll point to consolidation of store chains and slug-gish traffic at the nation’s shopping malls, which seem to be melting away like once mighty glaciers.
So, who’s right? Store chains, which treat e-retailing as a sideshow, or web enthusiasts who see it as the future of retailing? The answer is that it’s just too soon to tell. It took a century for retail chains to get where they are. By comparison, the e-retailing game is only in its second inning.
Nonetheless, last year online retail sales grew to $136 billion, up from $43 billion in 2001, the year of the so-called Internet bust. That’s a compounded annual growth rate of 25.9%. Store-based retail sales (excluding cars, food service and gasoline) achieved a CAGR of just 4.4% during the same period. True, the web still accounts for just 6.2% of retail sales of the type of merchandise sold in stores, but only five years ago it had only a 2.5% share. This may be like watching water boil, but if I were running a big retail chain I don’t think I’d turn my back on this Inter-net trend. One day, it just might boil over.
Jack Love, Publisher