Same-Site Sales Head North as Same-Store Numbers Go South
Consumers were already turning in increasing numbers to shop online before gas prices went wild. Now that consumers across the country are looking at paying $4+ a gallon at the pump, even more are choosing to get on the computer rather than in their car to go shopping.
Major chains including J.C. Penney, Gap and Victoria’s Secret have experienced healthy increases in their e-tail sales while store revenues have taken big hits.
Penney, for example, saw same-store sales decrease 7.4 percent during the first quarter. At the same time, the company’s internet sales were up 8.7 percent.
Mike Boylson, chief marketing officer for J. C. Penney, said the company has found that mall-based sales are down more than off-mall locations and online outperforms both.
“We see more people turning to online because it’s much more efficient in terms of time and money,” Mr. Boylson told The New York Times.
There’s little doubt that online has moved from a tiny sales niche in retail to the firmly plant itself in the “worth counting” category. Online’s coming-of-age was heralded recently when Moody’s, the credit rating agency, began factoring retailers’ online sales into its analyses.
“Online is starting to matter, and it is performing well,” said Maggie Taylor, vice president, senior credit officer at Moody’s Investors Service. “Now that it is big enough to matter, companies want to call it out.”
A number of retailers, including Penney and Target, have started factoring online into company same-store numbers.
Consumers, for their part, are looking for ways to cut gas consumption. Offers of free shipping are particularly attractive when consumers factor in how much it will cost them in gas to go shopping.
Some merchants including Ebags.com have started using the high price of gas as marketing tool. In an email campaign to millions of members last month, the company sent the following message: “Paying too much to get from here to there? Skip the mall. We’ll ship it to you for free.”
Some consumers, the Times article points out, don’t even mind paying freight charges.
Jessica Delmar, a manager for a technology company in San Francisco, told the paper, “A lot of shipping costs are $3 and $5. That’s even less than a gallon of gas now.”
Discussion Questions: How significant do you think the current behavioral shift is from stores to online? Will consumers who turn to the internet now continue with this behavior if transportation costs moderate? Are there any retail categories that have not reached maturity online that you think now have the opportunity to use the channel more effectively in the current economic environment?
For me, it is very significant and when customers see it works and they get good quality and good service for less time and mone. I think they will use the time for something else. If retailers can maintain the loyalty of customers online and still market to them and provide the expected service, then great. I couldn’t wait until Tesco went down this path in the UK a few years back. However, where I live now, the weekly shop is a social experience and something that couples and families do together.
Ever since the internet began, online sales have grown much faster than at bricks-and-mortar locations. Didn’t matter when gas was $2 or $2.50 or $3 or $3.50 or $4. Although it’s getting a lot more expensive to give away “free shipping” (UPS, DHL, and FedEx all have energy surcharges, and they’re in no price war), folks like the internet and more and more folks have broadband with home computers. So how is this trend new?
I think the behavior shift is significant and I think the trend to making purchasing decisions online will only increase. There is a whole other aspect to this thing that is not being discussed. It is becoming very expensive to operate retail stores. Utility costs are taking a larger portion of store budgets. Depending on the leasing arrangements, these can be coming directly out of retailers’ profits.
Supply costs are increasing expenses and merchandise cost increases are squeezing margins. Also, the “penny pinching consumer” is now willing to postpone instant gratification in order to avoid sales taxes.
I think all these factors are driving consumers to the internet, where comparison shopping can be done relatively inexpensively. The challenge for retailers is how to keep their stores from becoming “consumer reclaim centers,” where disappointed consumers show up to vent and get rid of purchases that don’t meet expectations.
Or maybe that’s the new role of the store. It really becomes a “show room,” meant to let the consumers try it on or see the real thing before they make a purchase. Changing the role of the store to provide that kind of feedback while allowing customers to have the merchandise delivered to their home seems like the way to face up to reality.
I think this is a geographic issue. Consumers in rural areas who in the past would drive two or three hours to urban areas to shop may take fewer trips and use more internet plus shop local stores more frequently. For consumers living in major urban areas where most everything is within ten to fifteen miles, there probably have not been significant changes in shopping patterns.
Growth rates in online have been high for years. They were high when brick-and-mortar comp sales were high. They were high when gas prices were lower. The question is: how have they changed?
Is there an inverse correlation between various retailers’ change in comps and change in online growth? I doubt it. Or, for a given retailer, between offline comps by market and online comps by market? I also doubt it.
The AP had a story today that higher gas prices are leading to less travel, which is leading to–surprise!–lower motor vehicle death rates…I wonder how long it will be before some safety group urges that the recession be prolonged to “save lives”?
I’ve looked into this issue some (the to-do list is forever long), so I’ve only managed to look at a couple of retailers in depth. What I found is that Best Buy has been reporting online sales in their store comps for years–which is why they have managed to keep them consistently in the 7-11%. Abercrombie & Fitch, on the other hand, breaks them out–and after some huge store comps after a significant effort around stores, has seen flat or negative store comps while online growth has been through the roof. When you roll the two together (which I will readily admit requires making some assumptions on my part), their comps don’t look so bad.
I think retailers who don’t report online–either separately or together–should be penalized by the Street because it’s clear that online has reached a point where any retailer who doesn’t take it seriously and treat it strategically is missing the boat.
I too think the role of the store is changing–to a showroom, a return center and an entertainment destination. If we want to try it on or try it out, we’ll head for the stores. If we want our money back, we’ll make the trip to customer service. And if we just want to get out of the house, we might check out a new concept.
But as the cost of getting there rises and we have even less time to make the trip, it makes perfect sense that we’re at least going to order our staples online. And as we come to rely more on customer reviews of big-ticket items, we may also forgo the try-it-out trip in favor of the rock-bottom price online.
Ultimately, I think retailers who do it right can do as much total volume online as they do in their stores, or even more. But it will require them to refocus on products, service and people–and to recognize that they’re not in the real-estate business after all.
We’re seeing lots of behavioral changes triggered by $4 gas and by other economic issues, such as the real estate slump. Online shopping is just one of several, which include a rush to more gas-efficient cars, tightening up on discretionary spending, trading down to store brands, and so on.
Whether all of these behaviors survive past this cyclical downturn remains to be seen–but chances are good that cheap gas isn’t going to return anytime soon. So this plays right into the growth that online retailing has been experiencing anyway, and it’s easy to forecast a particularly strong 4th quarter for this sector.
It isn’t just the price of gas. I pay 10.25% sales tax in Chicago. Or rather, I would if I still shopped here. Instead, I shop online. This weekend I just placed a $300 order with Amazon. Not for CDs or books, but for deodorant, shampoo, soap, toothpaste, paper towels, toilet paper, sponges, razor blades, etc. Amazon even sells Lavazza coffee. Not only did I get free shipping for all items and avoid paying sales tax, but also the prices were better than what I would find at Walgreens (who I might add is often out of my favorite Tom’s of Maine toothpaste). Why would I continue to shop at bricks-and-mortar stores? The hours aren’t convenient for me (a night owl). The staff rarely are knowledgeable. The inventory often doesn’t include what I want. The prices are high. And then there’s that sales tax. If my online purchases total $5,000 for this year, that’s $512.5 in tax I’ve avoided. Five hundred dollars. Memo to Amazon: When you discover your orders from Chicago are increasing and you decide to locate a facility in the Midwest, please build it next door in Indiana.