In total, consumer spending accounts for nearly 70% of U.S. GDP and has been growing this year by 0.2% during May and June and 0.3% in July according to the United States Department of Commerce. Retail sales are also projected to increase at 4%; however, more overall dollars are transitioning into online purchases. During 2016, e-commerce saw a 15.1% increase from the prior year and totaled $395 billion, representing 8.1% of all retail sales during the year.
E-commerce has continued to present a challenge for most retailers, as more customers are shifting a larger percentage of their purchases online. This industry disruption has been particularly hard for clothing and electronic retailers. This year has seen significant store closings by large mall anchor stores such as Sears, JCPenney and Macy’s, which alone account for over 300 closures. Electronic retailers such as RadioShack and GameStop have also witnessed significant closures, as have specific clothing retailers such as Payless, Gymboree and The Limited.
E-commerce has several advantages over traditional brick-and-mortar stores such as discount pricing, options and customization, distribution networks, convenience, and savings by not maintaining a physical store. Customers are also more likely to price shop on websites. Pricing can be particularly sensitive, as most retailers see extremely thin margins. There are also some significant disadvantages such as shopping experience, the ability to physically try or touch a product before purchasing, item size and weight shipping hindrances, costly returns, and delays between ordering and receiving the product.
To combat e-commerce, brick-and-mortar stores have continued to focus on their own on-line presence while also improving their distribution networks and reducing costs. Traditional retailers have become more competitive on price and can use the physical store’s advantage by providing multiple shipping options, including offering same day store pick-up, having a product shipped to a store, or having the product shipped directly to the consumer. Traditional retailers are also focusing on the improving the physical customer shopping experience. In addition, traditional retailers have embraced improved websites and phone applications. This can improve the retailer’s brand image and the shopping experience. Many websites and apps can tell the consumer if a product is in stock and even provide the exact location within the store.
The future will likely force additional reductions in store presence, but physical stores will continue to be important routes for consumer spending. The recent Amazon acquisition of Whole Foods shows the importance of having a physical space near customers. To learn more about e-commerce or our Retail Services Group, contact us.