Wednesday, April 17, 2013

Ecommerce growth takes an increasing share of US total retail sales

US retail sales tumbled in March ending a disappointing first quarter for many retailers. According to the US Commerce department, March retail sales declined 0.4% from February, the biggest decline in nine months. This follows a 1.0% increase in February from January and a 0.1% decline in January from December. Department stores, electronics retailers and sporting goods outlets all reported lower sales.

Many retailers including Target, Family Dollar and Nordstrom’s have issued profit warnings for first quarter citing cold weather the main culprit in declining sales. However, other issues may be at play here including higher taxes that kicked in at the beginning of the year, debt-strapped consumers and increasing competition within the retail industry. Combined, all of these issues can be reasons for the increase in ecommerce sales as more and more consumers seek out price comparisons with much more ease on mobile devices such as smartphones and tablets.

How has ecommerce sales fared? While data will not be available until next month, perhaps one can gain insight from the US Commerce department’s fourth quarter ecommerce report which was published in February. According to the report, ecommerce sales increased 1.4% from third quarter and 15.6% from fourth quarter 2011. As a result, ecommerce sales as a percentage of total retail sales were 5.4% for fourth quarter. In fact, ecommerce sales have steadily increased its portion of retail sales from 4.9% of total retail sales for first quarter 2012. This trend will likely continue as many retailers continue to invest in multichannel activities.

Ecommerce logistics solutions are ramping up as well. To remain competitive, retailers are utilizing stores as fulfillment options while same day delivery services continue to expand despite some reports suggesting consumers are not interested in such a service.  

In February, Macy’s announced plans to expand online fulfillment from 292 stores to 500 by end of 2013. Other retailers such as Walmart are doing this as well. As more retailers connect their physical presence with their online presence, the blurring of the two will occur with the end goal of creating a seamless and thus successful buying experience for the consumer.

Meanwhile, San Francisco seems to be a hotbed for same day delivery activity. Google recently launched its same day delivery service to compete against already existing services from Ebay, Amazon and Walmart. Also, the successful British courier company, Shutl, opened its US headquarters in San Francisco.

US total retail sales will likely remain sluggish throughout 2013 as the economy continues to grow at a slow pace. However, ecommerce will probably grab an increasing percentage of retail sales as consumers look to compare prices, buy goods 24/7 and learn to demand same day delivery services.