May 8, 2012, 1:13 PM

Fewer stores, more digital shoppers

The shift to more online shopping from stores impacts chain retailers big time.

Lead Photo

For the top executive of a major home improvements chain with nearly 1,800 stores in the U.S., Canada and Mexico, Lowe’s Cos. Inc. CEO Robert Niblock spends a lot of time talking about e-commerce these days. And with good reason.

In 2011 online sales for Lowe’s, No. 47 in the 2012 Internet Retailer Top 500 Guide, grew year over year 70%, while comparable-store sales for the chain’s bricks-and-mortar loca­tions were flat. Last year the web was the fastest-growing channel for Lowe’s, with online sales that reached an Internet Retailer-estimated $510 million from $300 million in 2010. In comparison, total sales increased about 2.9% to $50.20 billion from $48.81 billion in 2011

To grow its web business in 2011 and going forward, Lowe’s made several improvements to its e-commerce site, including rolling out MyLowes.com, a new interac­tive suite of tools that gives shoppers more customized ways to create and store room designs, check out avail­able inventory across stores and the web, and create and store folders and lists to organize products, projects and ideas.

Lowe’s has big plans in mind for e-commerce, and it’s hardly alone among the largest chain retailers ranked . That’s because consumers increas­ingly see less need to hit shopping malls and physical stores as they shift more of their shopping online, use more Internet-enabled mobile devices such as smartphones or tablets to check prices and buy, and cull product information and opinions from social media channels such as Facebook.

Some numbers tell the story:

  • The biggest chains continue to close stores. In 2011 30 of the 74 largest chains ranked in the 2012 Top 500 Guide closed stores. Overall the biggest chains ranked in the Top 500 Guide ended 2011 with a collective base of 109,227 stores, a decrease of 2.2% from a combined count of 111,721 stores in 2011. The drop in store locations was led by Blockbuster LLC, No. 133 in the 2012 Top 500 Guide, which after being acquired by Dish Network Inc. at a bankruptcy auction, dropped its store base by about 63% to around 1,500 stores in 2011 from about 4,018. The bankruptcy of Borders Group, parent of Borders Books, in 2011 resulted in the chain closing all 633 of its stores.
  • In 2011, the web remained the fastest-growing channel for 89.9%—62—of the chain retailers ranked in the Top 500 that break out store sales and other financials.
  • The web accounted for more than 20% of total sales for a dozen Top 500 chain retailers and more than 30% for five store merchants: Staples Inc. (No. 2) 42.4%; OfficeMax Inc. (No. 12); 40.7%; dELiA*s Inc. (No. 198) 38.2%; Williams-Sonoma Inc. (No. 24) 37.9%; and Office Depot Inc. (No. 6) 35.7%.

The growing importance of the web is not lost on the retail chains. “More chain retailers are coming to the realiza­tion that they don’t need to expand their store count or operate as many locations as they once did because more of their business is becoming web-based,” says Will Ander, a senior partner with retail industry consulting firm McMillanDoolittle. “The smart chains are the ones looking to grow online because there aren’t that many places left in the U.S. that warrant the cost of building another big-box store.”

As a group chain retailers ranked in the 2012 Top 500 Guide grew their combined sales 14.7% to $64.63 billion from $56.36 billion. But Top 500 chain retailers continue to lose business to web-only merchants, which collectively posted sales of $73.39 billion in 2011, up about 32% from $55.68 billion in 2010. In 2012, chain retailers only accounted for about 35.8% of all 2012 Top 500 sales, down from 37.5% in 2011. In comparison, led by Amazon.com (No. 1), web-only merchants grew their share of all Top 500 sales in 2011 to 40.6% from 37% in the prior year.

In the wake of closing stores and looking to compete more effectively against web-only merchants, some chains are looking to devote more resources to e-commerce. For example, Nordstrom Inc. (No. 31) told Wall Street analysts on its year-end earnings call in February that over the next five years about 30%—$990 million—of the com­pany’s planned $3.30 billion in capital expenditures will be spent on further developing its Internet infrastructure, including about $140 million in 2012. In comparison Nordstrom will only open one new department store in 2012 and about eight more in the foreseeable future.

For many big chain retailers, their future is clearly in growing their online channel—and not in perpetual expansion of their store count, says Kent Allen, principal and founder of The Research Trust, a San Francisco-based e-commerce and retailing industry research firm. “The Great Recession from a few years ago should have taught retailers they don’t need as many stores as they once had,” Allen says. “Today consumers aren’t just automatically heading to the mall. Instead they are using their computer or smartphone to research who has the best inventory at the best price and then making the purchase online with an option to have the merchandise sent to their favorite store.”

For the first time the Top 500 is available in three forms: print, digital and as part of the all-new and completely updated Top500Guide.com. Information on how to order the fully updated 2012 Top 500 Guide is available here.

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