While the social network isn’t doing away with its direct-sale initiative, it is focusing its attention on ads that drive consumers to retailers’ sites.
2011 brought little growth in bricks-and-mortar stores, but 14% growth online.
The numbers for 2011 retail sales have been pouring in and analyzed by marketers, economists, stock analysts, consultants and journalists. But most of the analyses I read miss or gloss over the most important conclusion: sales of all retail stores (excluding gasoline stations and auto dealers) grew at a meager 1% in real terms last year.
That wasn’t because of recession or unemployment or government’s failure to resuscitate the economy, although few would argue that Washington gridlock put the government on the sidelines last year. Yet, if the economy were the reason for the poor performance of retail store sales in 2011, why did the Gross Domestic Product grow 1.7% in real terms (and 3.9% before inflation’s impact is removed)? Why did car dealer sales grow 11% as General Motors, Chrysler and Ford raked in record or near-record profits? And why did real store sales growth actually slow down last year (from 1.5% the year before) even as personal incomes grew faster and unemployment rates fell?
The fact is that real retail store sales didn’t stagnate because of the economy. Instead, physical stores lost sales to online stores. In current dollars, retail e-commerce sales grew last year by 16.1%, and by nearly 14% in real terms. All of these numbers, recently released by the Bureau of Labor Statistics and the Commerce Department, lead to an inescapable conclusion: Offline stores are no longer driving the retail economy; web sites are.
The growing share of retail sales commanded by e-retailers is nothing new. Growth of retail web sites at the expense of physical stores has been occurring since e-retailing began in the mid-1990s. But the Great Recession put this trend in stark relief. More retail outlets have been boarded up than built in the last few years as the recession devastated traditional retailing. Conversely, the recession merely nicked online retailing—holding it in 2009 to single-digit growth for the first time ever. Since then, annual e-retailing growth has returned to double digits, while store retailing barely managed to stop its slide.
The result is that online retailing last year accounted for 8.6% of all retail sales in those areas where it competes (excluding auto dealers, gas stations and groceries), compared to 7.6% in 2010. Other analyses of 2011 retail sales put online’s share at about half that, but they include gas stations, grocery stores and auto dealers, and unfairly understate the real inroads made by online retailing.
In his book “Tipping Point,” Malcolm Gladwell describes the process by which hundreds of small factors conspire to create a “social epidemic” through which certain trends reach a boiling point and then go on to establish of new order. I believe e-retailing is nearing just such a juncture, thanks to many underlying factors conspiring in its favor and against physical stores, which together portend a major transformation of the U.S. retail economy.
Such factors are too numerous to document here, but they have led to the formation of a new type of advanced shopper, who is leading the revolution in e-commerce, is well-connected to society at large and sufficiently persuasive to attract a band of followers, who are tipping the balance of retailing toward the online world. They are 21st Century Consumers, and understanding how to reach them and meet their needs is the theme of this year’s Internet Retailer Conference & Exhibition, coming to Chicago’s McCormick Place on June 5-8. You should make a point to join the 8,000-plus e-commerce professionals who will attend the world’s largest e-commerce show and learn why e-retailing is reaching a tipping point.