March 4, 2014, 10:09 AM

Retail chains react to web retail’s growth

E-retailing's momentum and consumers' changing habits have chains rethinking how they invest and the role stores can play in e-commerce. Many retailers are closing or downsizing stores, as the web’s share of sales steadily grows, according to Top500Guide.com.

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Consumers are spending less time shopping in stores and shifting more of their retail dollars to the web. It’s a trend that has steadily played out over the last few years, as store-based merchants continue to bring in a higher percentage of their sales from the web. The importance of the online channel to major retail chains’ was particularly evident in recent weeks during year-end earnings calls for retailers like Gap Inc., Abercrombie & Fitch Co., Target Corp. and Best Buy Co. Inc. In many of those discussions with analysts, the retail executives spent a lot of time talking about multichannel strategies and the reshaping of real estate investment plans, not surprising since most also reported double-digit gains in online sales while store sales faltered.

Last week, for example, Abercrombie disclosed that the $777 million it generated in sales online in 2013 comprised 18.9% of total sales in 2013—up from 15.5% in 2012. Abercrombie is No. 45 in the Top 500 Guide. Target, No. 18, meanwhile, said online sales increased more than 20% year over year in 2013 while comparable-store sales dropped 0.4%, with both figures depressed by an embarrassing data breach that the retailer disclosed just before Christmas.

Store-based merchants has been reporting this kind of growth in the share of their sales coming from the web for years, as documented by data compiled from Top500Guide.com and retailers’ annual reports.  Toys ‘R’ Us, for example, derived 13.5% of its total sales from the web in 2012, up from 9.1% in 2010. Wal-Mart Stores Inc. brought in 2.9% of total revenue from online shoppers in 2012, up from 1.6% in 2010. Updated figures for 2013 will be released on Top500Guide.com in late April.

The Bureau of Labor Statistics’ American Time Use Survey shows that between 2004 and 2012, the average amount of time consumers 15 and older spent shopping in bricks-and-mortar stores for consumers goods on weekends dropped 14.3%; on weekdays, it dropped 11.8%. That trend continued during the holiday season last November and December foot traffic in stores fell 14.6% compared to the previous year, according to ShopperTrak, which monitors traffic and sales at major malls and retail chains. Meanwhile, online sales are growing at a double-digit pace; they were up 16.9% year over year in 2013, according to the U.S. Commerce Department, whereas total retail sales, which include e-commerce, grew 4.2%.

The shift to online shopping is also showing up in commercial real estate data.  Retail space availability rates are still above 10% after peaking above 13% two years ago, according to data from investment and risk advisory firm CBRE Econometric Advisors —but retail space under development in 2014 is at a historic low as developers wait for retailers to absorb existing vacancies. “Development is in limbo state right now,” says Abigail Rosenbaum, an economist for CBRE Econometric Advisors, noting that the economic recovery has been muted for retailers. “The omnichannel piece is affecting how retailers think about stores, and how developers are thinking about retail centers.” Retailers have a much smaller number of projects planned than prior to the recession, she says, and the ones that are planned are smaller than before.

Gap Inc., for instance, managed 7.6% fewer square feet of retail space in the United States in 2013 than it did in 2010. But online sales and an increasing integration of the web in the stores, such as the “reserve online, pick up in store” program that it rolled out to 652 stores in November, helped the retailer generate 19.3% more in sales in 2013 than three years earlier. Gap is No. 19 in the Top 500 Guide.

Meanwhile Macy’s Inc., while operating roughly the same number of department stores nationwide, is slowly shifting the stores’ locations to places, which it believes will drive more sales per square foot. For example, in January it announced it would close five stores located in suburban locations like Overland Park, KS, a suburb of Kansas City, and Florissant, MO, a suburb of St. Louis, but open six new stores in locales including Las Vegas, Miami, and tony Palo Alto, CA. It is also expanding its stores’ roles to support e-commerce. At the close of 2013, 63% of Macy’s stores fulfilled online orders from store inventory, up from 37% a year earlier. This spring it will roll out to all its roughly 675 full-line department stores a buy online, pick up in store program it began testing last year in 10 stores in the Washington, DC, area. The larger buy online, pick up in store program will let Macy’s test same-day delivery of online orders, executives at Macy’s, No. 12 in the Top 500, said last month.

Target, which has slowed construction of new stores from 52 in 2009 to 15 in 2013, also has plans to incorporate more e-commerce elements into store shopping. It launched a buy online, pick up in store program in November. In an earnings call last month, executives said 10% of online orders placed during the fourth quarter were picked up in store, and that 30% of consumers who picked up a web order in store also bought products at the store in the same visit. Target says it will begin to ship web orders from store inventory by fall 2014.  

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