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Brick-and-Mortar Without E-Commerce...

May 03, 2016, 07:00 AM

Regardless of who pioneered e-Commerce (several companies make claim to have been the first), it all seems to have started in the early 1990's. More than two decades ago, dial up Internet was the only option and email was far from mainstream. Fast-forward to present day. Technology is not only high-speed but also wireless, and e-Commerce sales in the United States were approximately $341.7 billion last year, or 9.4% of total retail sales (1). Given that e-Commerce sales have more than tripled in the last ten years, it's not a stretch to think that having an e-Commerce channel as a part of an overall retail strategy is pretty important. In fact, having a robust e-Commerce business could very well be the difference between success and failure for many retailers.

It's important to note that this trend in not exclusive to the United States. According to eMarketer, consumers were forecasted to spend somewhere in the neighborhood of $1.67 trillion online in 2015, which would be approximately 7.3% of global retail sales. eMarketer further estimates that e-commerce sales will grow to 12.4% of global retail sales by 2019, almost doubling overall volume to $3.55 trillion(2). This is a serious level of growth by any standard and something that cannot be ignored. As a result, e-Commerce should be a major component in any retailer's arsenal.

Across the retail landscape in the last few months, there have been several announcements regarding store closings and/or a slowdown in the rate of new store openings (Macy's, Inditex, etc.). As technology and the customer experience improve online, the customer has less of a need to go into a store to make purchases.

In fact, for most retailers, the average basket size for an e-Commerce sale is greater than that in their brick and mortar locations. In the future, it will be absolutely critical for any retailer with a brick and mortar presence to increase the levels of conversion and total basket size. Since there are fewer customers coming into most retail stores, getting those that do come in to make a purchase, and a larger one at that, becomes much more important. Without it, flat sales will be almost impossible to attain and comparable store sales decreases will become the new normal.

What does this mean for the retailer?

  • Based on the numbers above and assuming they have a well-established e-Commerce platform; retailers should be doing approximately 10% of total revenue through that channel and growing every year.
  • If a retailer doesn't have a well-established e-commerce platform, they may experience little to no growth in the future from a comparable store sales standpoint, and may need to work towards a robust e-commerce platform, quickly.

A perfect example of both of these points comes from Dick's Sporting Goods, and their 2015 results. Dick's e-Commerce sales were approximately 10.3% of revenue for FY2015. They grew from the previous year by almost 19.5%, while comparable store sales had an overall decline of -0.2% (3). The lesson here is that e-Commerce sales are fueling overall retail growth, while pure brick and mortar enterprises are struggling to maintain status quo.

It should be noted that having a brick and mortar presence is still important. I hate to say never, but at the end of the day brick-and-mortar retail will never go away. There will always need to be a place where the customer can go and experience the product in person, and ultimately have the convenience of being able to buy the product on the spot or have the option of picking up their e-Commerce purchases. All retailers know that having a varied mix of merchandise within their strategy only helps to sell more of everything else (imagine if McDonalds didn't sell soft drinks, or fries to go with a burger). What retailers have discovered is that they also need to have the right mix of channels available to fit each customer and their own individual needs or preferences. Having a multi-channel presence only helps to broaden a retailers customer base by making it easier for the customer to make purchases in the manner they prefer.

Presumably, this all sounds pretty simple. All a retailer would need to do is have an e-Commerce presence and all will be right with the world, right? There are plenty of retailers who will tell you that just having an e-Commerce platform does not guarantee a pathway to future success. A well-run, well-designed platform and strategy that will compel customers to visit a retailer's site and make purchases is critical. Not only that, but once a company has an e-Commerce platform, it needs to be a dynamic offering that continues to evolve with technology and the customer.

One of the challenges that smaller mid-market or regional retail chains have with their e-Commerce business is that they are not used to competing against everyone in their space. From a brick-and-mortar standpoint, a retailer really only has to compete against the other retailers who are within a certain proximity of each of their stores. Online, a retailer is competing against EVERY retailer who carries similar products. No different than running brick-and-mortar stores, a retailer has to do things better or differently than its neighbors to keep the customers coming in the door (and hopefully with a shopping bag on the way out.) Please note that I am not saying that small retailers have to be able to compete with the likes of Amazon and Wal-Mart on pricing or product offering to be successful. What they must do is give customers a reason to go to its website instead of its competitors. Can they make their site easier to navigate, offer better product descriptions, have more insightful/relevant reviews, offer better/more product photos, with a painless checkout process, with better options for pickup or delivery, and/or incorporate your customer rewards program? These are all a part of the customer experience. For a lot of customers, the overall buying experience is just as important as price or free 2-day shipping.

Interestingly, there is now an increasing trend of trying to merge the traditional retail and e-Commerce experiences with the idea of enhancing both. Amazon has now opened a store (a book store nonetheless) and is rumored to be opening more. Retailers must look to ever increasing improvements in technology to continue to fuel growth and again, improve the customer's experience through one or both. Mobile technology is a perfect example of this.

Customers spend a lot of time shopping for items on their mobile device that in the past they ultimately purchased either in a retail store or through a computer. Over the last couple of years, the leaders in the industry have come up with ways to allow the customer to easily make purchases through their mobile devices. Every retailer knows that the easier you make it for a customer to shop, the more likely they are to make a purchase. Giving the customer more convenient options helps to improve the overall experience (think: ship-to-store, in-store returns) and allows brick-and-mortar and e-Commerce to complement one another.

Ultimately, the competitive landscape is getting more difficult to navigate and a retailer's ability to evolve quickly as customer needs/wants/desires change will be paramount. Not only is having a well-established e-Commerce presence vital to providing a competitive customer experience, but by not having one, the chances of prospering in the short- and long-term are very slim.


1. Zaroban, S. (2016, February 17). U.S. e-commerce grows 14.6% in 2015. Retrieved from Internet Retailer.
2. Lindner, M. (2015, July 29). Global e-commerce sales set to grow 25% in 2015. Retrieved from Internet Retailer.
3. Davis, D. (2016, March 8). E-commerce wins Q4 for Dick's Sporting Goods. Retrieved from Internet Retailer.

Patrick Diercks
Managing Director | Clear Thinking Group, LLC
Diercks has over 12 years of experience as a consultant in the turnaround/restructuring arena dealing primarily with companies in consumer product manufacturing/distribution and retail. He has participated in numerous assignments related to cash management and operational performance improvement.

He has been retained to assist clients with the preparation and analysis of business plans, financial statements, cash flow reporting and forecasting, collateral analysis and monitoring, out of court wind-downs, labor standards development, and POS implementation/training. Diercks has provided services to the Debtor within the Chapter 11 bankruptcy process including: the preparation of cash collateral forecasts, DIP budgets, claims analysis, asset analysis and recovery, and estate wind-down activities. Additionally, he has performed interim senior management roles including operations, finance, logistics, customer service, distribution, and inventory control. He has also been retained by multiple bankruptcy estate trustees post confirmation to assist in managing/administering the plan. His responsibilities included claims analysis, preference analysis, and distribution of funds to creditors. Diercks is a Certified Insolvency and Restructuring Advisor through the AIRA.
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