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E-Commerce Crushes Mall Retailers One by One. Here’s the Data

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Published : May 20th, 2019
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Category : Editorials

Brick-and-mortar department stores – the lucky ones still open – are on schedule to be toast.

E-commerce sales in the first quarter soared 12.4% from a year ago to $127.3 billion (not seasonally adjusted), the Commerce Department reported on Friday. Last year, e-commerce sales blew through the $500-billion level for the first time ($513.6 billion). For 2019, e-commerce is on track to hit $575 billion, an increase of $61 billion. Over the past five years, e-commerce sales have doubled. On a seasonally adjusted basis, e-commerce sales in Q1 hit an all-time high of $137.7 billion.

E-commerce includes sales by the online operations of brick-and-mortar retailers. The top ones have huge and thriving online operations: Walmart, Home Depot, BestBuy, and Macy’s in that order are the fourth through seventh largest e-commerce sites in the US, behind Amazon, eBay, and Apple.

So this is the business Macy’s brick-and-mortar stores are in:

But none of the major retailers, with one exception, disclose just how much of their own booming e-commerce sales have eaten into their brick-and-mortar sales. They brag about percentage growth of their e-commerce sales, but refuse to disclose the booming dollar-terms of their e-commerce sales and the dreadful dollar-terms of their brick-and-mortar sales. They have a large amount of money tied up in their physical stores, and so it’s better to keep investors in the dark about the performance and ultimate fate of those stores.

The exception is Nordstrom. Last year, it started disclosing the dollar terms of its “digital sales.” By Q4, its digital sales were 33% of its total sales.

Macy’s, for example, just reported a decline in net sales in Q1 compared to a year ago, but “double-digit growth in our digital business” – the only thing Macy’s said about its e-commerce sales. With overall revenues declining and e-commerce sales booming, its brick-and-mortar operations must have been beset by plunging sales. But Macy’s keeps this data secret.

To obfuscate this fact further, Macy’s and other retailers now include their digital sales in their “comparable sales” metrics – formerly called “same store sales.” So these “comparable sales” no longer say anything at all about the sales at brick-and-mortar stores.

People say that e-commerce accounts for only a small portion of total retail sales (10.2% in Q1) and therefore doesn’t matter. But this is misleading because e-commerce has not yet made major inroads into sales at gasoline stations, auto dealers, and grocery and beverage stores that together account for 52% of all brick-and-mortar sales. With those taken out of the tally, e-commerce now amounts to 23.6% of the remaining 48% of retail sales.

The stores that are directly targeted by e-commerce are the classic mall stores: Department stores (Sears Holdings, Bon-Ton Stores); book stores (see Borders, B. Dalton, Waldenbooks); video stores (Blockbuster); music stores (Tower Records); hardware and hobby (Orchard Supply Hardware); toy stores (Toys ‘R’ Us); jewelry and accessory stores (Claire Stores); sporting goods stores (Sports Authority); electronics and appliance stores (Circuit City, CompUSA); clothing and clothing accessory stores (Limited Stores, Pacific Sunwear, Aeropostale); and shoe stores (Payless Shoe Source).

The blue line in the chart below represents sales at these mall stores, and the red bars represent e-commerce sales:

So yes, e-commerce is only 10.2% of total retail sales. But it has already killed entire retailer categories, such as video stores, and is killing others while it is leaving other retailer categories essentially unscathed, such as gas stations, auto dealers, and grocery stores – though that may change in the future.

Total retail sales in Q1, including e-commerce, rose 2.0% from a year earlier (not seasonally adjusted). For reference, over the same period, inflation as measured by the Consumer Price Index rose 1.9%. Retail sales without e-commerce sales ticked up only 1.7%. This was below the rate of inflation. And yet, e-commerce sales jumped 12.4%.

The strength in e-commerce despite the weakness in the rest of retail sales is part of the historic shift that has been going on for over two decades and will continue for many more years until the shift is finished. It didn’t happen overnight, and it won’t be finished overnight.

The second quarter started out better: The “advance estimate” of total retail sales for April (e-commerce sales data is not available, it’s reported quarterly) rose 4.9% year-over-year, not seasonally adjusted, right back in the middle of the range of the past six years.

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Wolf Richter is based in San Francisco. Entrepreneur with over twenty years of C-level operations experience, including turnarounds and startups.
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