Stores experience a slower rate of sales growth than the web.
For online retailers, it appears to be a case of good news multiplied several times over. The U.S. Department of Commerce this week reported 18.4% year-over-year growth in retail e-commerce sales for the second quarter—the highest quarterly growth rate for e-commerce since late 2007—compared with a 4.7% rise in total retail sales. Behind that accelerating growth are several developments that promise continued strong results, experts say.
“I don’t think it’s a blip,” says Sucharita Mulpuru, vice president and principal analyst for e-business and channel strategies at Forrester Research Inc. “We are definitely seeing strong, strong growth in e-commerce and it’s coming at the expense of physical stores. It’s happening across the board in virtually every sector.”
Paula Rosenblum, a former retail executive who is a managing partner of research and advisory firm Retail Systems Research LLC, says the rising price of gasoline is adding to the challenges facing stores, as shoppers have more incentive to stay home and shop online. She adds that teens and young adults who grew up with the Internet are also helping a shift to more online shopping.
Scot Wingo, CEO of ChannelAdvisor Corp., a company that helps retailers sell through e-marketplaces like Amazon.com and eBay.com and other online channels, points to several developments and “waves of innovation” that have strengthened over the last several years to put online retail on a strong growth trajectory. “It’s really exciting for the industry to see this acceleration,” Wingo says.
While the Commerce Department reports that Q2 online retail sales grew 18.4% year over year to $64.8 billion, Internet research firm comScore Inc. estimated a slightly smaller rise of 15.5%.
Wingo says ChannelAdvisor has identified five major areas of online retailing innovation that are behind the accelerated growth:
● The Amazon effect. “Amazon has raised the bar on everything” related to how consumers shop online, Wingo says, “and everyone else is working to keep up. The end result is a better experience for all consumers.”
● Mobile commerce. Amazon, along with eBay.com Inc., has also pushed ahead with mobile shopping, which has led to innovations from other companies, such as Google Inc.’s same-day delivery service Google Shopping Express and the new retail shopping portal Wanelo.com.
● Social media, which Wingo says is still “just starting” to develop as a facilitator of e-commerce sales.
● Global e-commerce. Wingo says increases in cross-border trade routes are helping to expand global e-commerce and also adding to domestic sales.
● Consumer brands online. “More and more brands and manufacturers are going direct to consumers, and this is creating a variety of interesting new choices for consumers,” Wingo says.
Rosenblum also notes much of the growth in online retail sales is occurring at the largest retailers. Wal-Mart Stores Inc., for example, says it grew its global online sales by 30% in the first half of this year, and Amazon says its North American sales rose 29.6% in the second quarter. Wal-Mart is No. 4 in the Internet Retailer Top 500 Guide; Amazon is No. 1.
Eric Roth, a managing director at financial advisory firm Lazard Middle Market, who advises e-commerce and multi-channel retail companies, says that after taking out the growth in web sales of two of the largest bricks-and-mortar and largest web-only e-commerce retailers, the average overall growth rate for the second quarter is probably closer to 12% year over year. Still, that indicates strong growth for online retail at a time when store sales at many retailers are flat or down, he adds. “That 12% is not a blip,” Roth says. “I think we will continue to see double-digit growth in online sales.”
He adds, however, that major retailers can be expected to continue investing large amounts of capital in e-commerce infrastructure, making it tougher for smaller retailers that sell commodity items. “For smaller retailers selling items that are low price point, third party goods that also are not amenable to content and community, the future could be tough,” he says.