E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
The web is not a substitute for stores but the core means of revitalizing them, making chains more relevant in an Internet age.
There is a tendency in financial journalism to observe a current trend and project it to infinity. Thirty-nine years ago this month, Business Week published its famous cover story entitled “The Death of Equities.” If you Google those four words, you will see that economists and financial analysts are still writing about that article, explaining how its brilliant analysis led to such a flawed conclusion.
Looking at Wall Street from the inside, the argument that equities were being replaced by higher-yield investments was logical. New money market funds were soaring. Gold had just broken (get ready) the $300 level for the first time. The Dow was trading in (get ready again) the 800 range, having fallen from a peak of 1,000 that it scaled just before the 1973 OPEC oil embargo, when the price of oil soared overnight from (get ready one more time) $3.50 a barrel to $10. In short, things were so gloomy in the stock market that Business Week’s investment editors fantasized about the demise of stocks. Other Business Week editors, including myself, who covered companies and industries, believed there was too much fundamental value in corporate assets for their stocks to be undervalued forever.
Fast forward to today. Starbucks, the most successful food service chain since McDonald’s, is closing 600 stores. Retail chains are shuttering locations all over the place. Malls are emptying out, and no new ones are being built. Given the collapse of the mortgage and housing market and the worst banking meltdown since the Great Depression, it’s hard to believe this picture will change any time soon. And while e-retailing last year grew at 22%-another yawn for that business-store-based sales grew at only 3%, barely enough to beat inflation. A few weeks ago, a lead story on the New York Times business page reported how consumers were abandoning stores in favor of web sites in order to avoid drive-to shopping with $4-a-gallon gasoline in the tank.
One wonders whether a Business Week cover story on the “Death of Chain Stores” can be far behind.
If ever written, it too will reach an egregiously wrong conclusion. As our August cover story reports, many chains are finally investing heavily in the web-not as a replacement for stores but as an integral part of their retailing strategy. Chains like J.C. Penney, which constantly reinvents itself, are leading the way. In his keynote address at the Internet Retailer Conference & Exhibition in June, Mike Boylson, Penney’s chief marketing officer, told attendees that JCP.com was being positioned as “the hub of the brand.” In short, the web is not a substitute for stores but the core means of revitalizing them, making chains more relevant in an Internet age.
A good model is the office supply market. The three leading store-based office supply chains are also the three top retail chains ranked in our new Top 500 Guide of e-retailers (No. 2 Staples, No. 3 Office Depot and No. 6 Office Max). No wonder 37% of office supplies are sold online, the web’s highest penetration of any merchandising segment.
Most chains have a long way to go to match that. They are being pushed into this new world by catalogers and Internet-only merchants who outperform them on the web and whose online sales have grown faster. Some chains, like Starbucks, still don’t get it. The fastest growing e-retailer last year was Green Mountain Coffee Roasters. In stark contrast, Starbucks.com didn’t make the Top 500. Why? Maybe, like GOP candidate John McCain, Starbucks hasn’t done “a Google.”