Over the past decade (and accelerating) online sales continue to make up a larger share of total retail sales. In 2017, Ecommerce grew 16% from the prior year and now makes up 13% of total retail sales. This growth rate was the largest since 2010. And of course, this growth was mainly driven by Amazon who saw their sales grow 30% and even more staggering, Amazon made up 70% of the growth in overall online sales. Domination indeed… especially if we will one day buy everything online!
If the expectation was that Ecommerce sales were going to go from 13% to say 60% of total retail sales, in the coming years, we could and should go home early and invest a good portion of our portfolio in Amazon. They are the gateway to commerce online and therefore would be the dominant retailer for all things. But, is Ecommerce the puzzle or just a one piece of the retail puzzle? And if it is just a piece hasn’t Amazon’s “dominance” only clouded the typical investor’s judgement in thinking they are “it.”
With their purchase of Wholefoods, Amazon itself has telegraphed their thoughts on the future of retail… that selling goods online is only one part of any retailer’s success story. A brick & mortar presence is as essential to success as an online storefront. Every sale in 2030 is not going to originate and come to completion online. Retailers are going to need to be Omni-channel (i.e., originate and fulfill orders both online and offline) and be able to navigate the costs and benefits of doing business through each channel.
In fact, as online business continues to mature, the cost of doing business online will increase making offline business more profitable. This is already happening in China and no doubt will happen here in the U.S. How fast a retailer’s management identifies this and makes the proper business decisions will determine their future success.
Most investors have gotten lost in the retail forest, stuck to the ecommerce tree (as evidence by the collapse of many retailer’s stock prices in the first half of last year). This provided a buying opportunity into the best retailers who realize they are in business to make money regardless of the sales channel! Those companies that offer the product consumers want and delivered the way they want will be the successful retailers of the future!