If you are one of the few people who still believes that the whole e-commerce/ online retail thing is just a fad, I suggest that you open up that flip phone of yours, dial 411, and ask to be connected to the nearest Borders store. (By the way, if you really do call, let us know how what happened.)
But jokes aside, e-commerce and online retail has been around for a few years and it doesn't look to be going anywhere anytime soon. In fact, there is even vigorous debate as to whether physical retail establishments will, for all intensive purposes, die, because of online retail and e-commerce. (Note: personally, we believe that such a scenario is unlikely; chances are, rather than die, physical retail establishments will evolve and continue to play a prominent role in the retail ecosystem).
Nonetheless, regardless of one's thoughts on the extent to which the ecosystem will change, few deny that the retail landscape is changing and will continue to change. Furthermore, there is a seemingly unanimous belief that one of the main drivers of this change will be the increased importance of online retail and e-commerce.
Today we'll examine how this change might occur and to what extent it will be felt. But before we get into any discussion of what might happen in the future, let's discuss what has occurred and what is occurring today.
The Past and Present
Figure 1 below tells the story of online retail sales, by category, from 2001 to 2011. I won't insult you by explaining a graph that needs no explanation, but I will note that the primary purpose that this graph serves is to demonstrate: 1) the online share of retail sales is still pretty small and 2) though low, online share of retail sales has trended up consistently over the past 10 years.
And the upward trend has continued. In 2012, online retail sales climbed to $226 billion, 16% higher than 2011 online retail sales and 5.2% of all retail spending in 2012.
In 2013, e-commerce sales rose again. In fact, total online retail sales in 2013 exceeded $263 billion, representing a 17% increase over 2012 sales. Furthermore, online retail sales as a percentage of total retail sales also increased to 5.8% of total retail sales in 2013.
Thus, it's fair to say that online retail sales have experienced continuous, substantial growth both in absolute terms and as a percentage of total retail sales. Nonetheless, they still only comprise a small percentage of total retail sales.
As we've said before, “the future is fundamentally unwritten.” Nonetheless, sometimes it's fun to hypothesize anyhow.
So, what does the future hold? Well, plenty of people claim to know...and some even claim to have a high degree of confidence in their predictions. And, while we remain uncertain, we are partial to the portrait of the future that Forrester paints in Figure 2.
And why do we like the Forrester forecast? Largely because we agree that both total online retail sales, in absolute terms, will grow consistently, and that the share of total retail sales that online retail sales represents will also grow, but we believe that both will do so at a slow and steady pace.
Furthermore, our belief in this pattern of growth is partly rooted in the online-offline ecommerce divide, which Figure 3 illustrates.
Smartphones are the remote controls for our lives. We spend more time on our smartphones these days than we do on computers; we watch videos and TV shows more often and for longer periods of time on our smartphones, as compared to traditional TVs; and we do the majority of our retail store browsing on smartphones and tablets. However, as Figure 3, above, illustrates, when it comes to actually pulling the trigger and making a purchase, particularly with respect to apparel and fashion, we buy in-store. In fact, though 40% of retail sales are influenced by online browsing, 75% of these same sales occur in store, within 15 miles of where one lives.
This online-offline divide is a tough nut to crack, and while we think that progress will be made with respect to bridging the divide, we believe that the progress will be slow and steady.