Will online sales redeem struggling brick and mortar retailers?

Photo: RetailWire
Jan 20, 2017
George Anderson

More consumers than ever before went online to purchase gifts this holiday season. While Amazon.com was the clear winner of Christmas, according to reports, plenty of brick and mortar retailers also saw e-commerce activity pick up. Unfortunately for some, including J.C. Penney, Macy’s and Target, increases in online sales were not enough to offset declines in physical store operations.

While not giving an exact percentage increase for the holiday season, J.C. Penney chairman and CEO Marvin Ellison said the company is “encouraged by a very strong performance in our e-commerce business, evidenced by double-digit growth.” The chain saw its comparable store sales decline 0.8 percent during November and December.

Macy’s, Inc. reported the company’s websites — macys.com and bloomingdales.com — each posted double-digit gains for the last two months of 2016 while comparable store sales fell 2.1 percent during the same period. Macy’s CEO Terry Lundgren, who will step down from the position this year, said the gains made online were not sufficient to make up for declines in store traffic “where the majority of our business is still transacted.”

Target reported its online sales improved 30 percent year-over-year over the final two months of the year, but again the gain was not great enough to push the chain’s sales into positive territory. Brian Cornell, chairman and CEO of Target, said the increase in online sales also hit the company in its bottom line profitability.

“While we significantly outpaced the industry’s digital performance, the costs associated with the accelerated mix shift between our stores and digital channels and a highly promotional competitive environment had a negative impact on our fourth quarter margins and earnings per share,” said Mr. Cornell.

DISCUSSION QUESTIONS: Do you think brick and mortar retailers such as J.C. Penney, Macy’s and Target can build their online businesses to a point where they offset declines in store traffic and sales? How can these businesses address the hit they will take to profitability as more dollar sales shift online?

"All of these stores and others have opportunities to improve their assortments, customer service and overall store experience."
"Some of today’s largest retailers will survive this transformational period; they will be primarily an online shell of what they were."
"The fact is there are just a lot more people taking a slice of the consumer pie, so most older established stores are getting a smaller slice."

Join the Discussion!

25 Comments on "Will online sales redeem struggling brick and mortar retailers?"

Sort by:   newest | oldest
Dick Seesel

“Omnichannel” retailers like Macy’s, J.C. Penney and Target are still heavily dependent on their physical footprint. Each store reported rapid e-commerce growth (from 17 percent in Penney’s case to 30 percent at Target), yet each of them also reported total comparable-sales declines in the low single digits. So it’s clear that the combination of brick-and-mortar and omnichannel isn’t driving sales yet.

All of these stores and others have opportunities to improve their assortments, customer service and overall store experience. Omnichannel initiatives like BOPIS and ship-from-store have put even more strain on retailers’ ability to execute these “Retail 101” issues better. But until they do, their overall sales will continue to be stuck in neutral.

Mark Ryski

I suspect that much of the online sales growth these retailers are getting is merely cannibalization of sales from customers who would have otherwise purchased in-store. As long as these are shifted sales and not new incremental sales, online will not make up for the decline in store traffic. Retailers need to continue to work to improve and advance their online shopping experience, but they also need to refocus their attention on improving in-store conversion rates if they want their same-store sales results to improve. These retailers don’t necessarily have a traffic problem, they have a conversion problem.

Lyle Bunn (Ph.D. Hon)

Totally agree Mark, and that cannibalization of in-store revenues by online is often bringing an increased cost of operations due to the shipping and return aspects of online. In gaining net new revenues, retailers have got to make the customer experience as fluid, effortless and worthy of consumers’ time as possible. This is brand building based on location and digital experience.

Tom Dougherty

The question you ask is wrong. It should be “can retailers afford to keep their existing (and expensive) real estate with online sales?”

It’s not just a question of percentage of sales from online and brick-and-mortar. It’s about profits.

Amazon makes its profit from online sales. The infrastructure is built to support that. They do not need to own or lease expensive commercial real estate.

Macy’s does. J.C. Penney does. Bloomingdale’s does. And Target does.

This is apple to oranges. Not apples to apples.

Paula Rosenblum

The problem isn’t the top line. It’s the bottom line. Despite early conventional wisdom, store sales just cost less than direct sales. For companies like Macy’s, part of it is the amount of inventory tied up in customers’ homes that are on their way back, or coming back (return rates at 25 percent). The cost of fulfillment also is higher.

So “redeem” is a funny word. It will support top lines but it doesn’t solve a whole host of other problems like logistics, brand erosion and the race to the bottom.

Doug Garnett

I don’t think that it’s set up for retailers to consider online as an alternative silo hoping that sales there will offset any sales lost in stores. The issue is more subtle.

The research (and economics) show that online sales work best when they are a point of entry and lead to the store. The reason is that the economics of pureplay online retail are bad — as Target noted in their release.

Retailers need to focus instead on how online presence and online selling can be used to increase store traffic. And look at how store presence in a market is advertising for the website — so closing stores will also hit online sales.

Steve Dennis even wrote this week about how obsession with store comps can be an error in the modern day — because it doesn’t account for the holistic connection between online and stores.

Bob Amster

The combination of online and brick-and-mortar sales for a normal retailer is supposed to be a zero-sum game, i.e., what I lose in sales in stores, I make up in sales in e-commerce. If we see that certain retailers are suffering from decreasing overall sales it is not because of the internet, it’s because they are just not so attractive in terms of either what they sell or the price at which they sell it or the ambience in which they sell it. Someone else is eating their lunch.

Phil Masiello

The shift of consumer purchases to e-commerce will continue. If Macy’s, Target and others focus wisely, they can use an omnichannel approach to engage with the consumers’ desire for more convenience. But it won’t replace what they have lost and are continuing to lose, because they have been late to react to the change.

The biggest problem I see for the three retailers mentioned, and others like Best Buy, is that they have nothing unique to sell. So when customers go to their stores and “showroom” they can find exactly what is being sold by any of these retailers, for less money online, and have it delivered to their home by the next day.

In short, in order for any retailer to survive, they need to have a clear point of difference or unique products that customers want. Then they can exploit the omnichannel opportunities to use their stores with e-commerce to satisfy the consumer.

Shawn Harris

I recently wrote a short piece on this, “Digitization and the Retail Revenue Reset.” I do not believe that most traditional retailers will be able to generate equivalent revenue from online as they had from their traditional operations. Digital inherently comes with demonetization, as it increases access and lowers barriers. From an online distribution perspective Amazon is the leader by an order of magnitude. In a world centered on “how do I/we optimize everything?” you simply can’t get optimal performance with too many independent variables/retailers. Some of today’s largest retailers will survive this transformational period; they will be primarily an online shell of what they were.

Jeff Sward

I think online sales are largely “instead of” sales, not incremental sales. Shoppers are online instead of in their car. So it’s hard to imagine online business offsetting declines in brick-and-mortar business if online business IS the decline in brick-and-mortar business. If I’m a retailer, first and foremost I just want the sale … front door, side door, back door. And if the consumer insists on buying it online, it’s up to me to figure out how to do that profitably. A large part of the answer will be found in shipping costs and returns. Efficiencies there will pay huge dividends. I also like the idea of emphasizing non-emotional and non-fit purchases online, like dog food and my favorite coffee on auto-replenishment. I haven’t returned a box of coffee yet. New shoes or a new jacket? Total coin toss. How does the retailer incentivize a visit to the store when returns are a high probability event?

Lee Peterson

Simple answer: they’re going to be smaller. But hopefully a lot better. So many lessons to learn right now. In talking to retailers I know across all categories, with rare exception, the comments are like this, “our online sales in increasing tremendously, but that’s not making up for the delta we’re losing in stores.” That said, whittling down to your “A” stores seems to be an inevitability. Smaller, better. Or gone.

And you don’t have to look far for the culprit. Amazon’s revenue increased over 100 billion in just the last five to six year period. That’s a piece of everyone’s pie, not just Macy’s and Penney’s, but some of Walmart and Target’s as well. No one ever said retail was for the weak of heart, but this is a whole new era of culling the herd.

Richard J. George, Ph.D.

As noted in a recent discussion on J.C. Penney, there’s no doubt that e-commerce has been and will continue to be a major disruptor of traditional retailing. Omnichannel, which is about customers and not channels, does represent the future. However, that being said, every brick-and-mortar retailer needs to review its current positioning in light of the jobs that customers will hire it to do. All of the brick-and-mortar retailers noted in this discussion need to take a hard look at themselves and reassess what these stores that it will keep open will do to survive in addition to simply serving as a pickup point. No doubt that if they are unable to grow the top line, the logistical costs of maintaining two different channels will weigh heavily on the bottom line.

Ryan Mathews
When will we finally acknowledge that the digital ship has sailed and that consumer behavior has changed and will continue to change in ways that do not — in the main and with notable exceptions — favor physical retailing? The roots of this problem go deep and precede the Internet. Twenty odd years ago I published editorial after editorial warning that U.S. retail in general — and food retailers in particular — had made a critical mistake by mindlessly and relentlessly pursuing an item- and price-based marketing strategy. If you spend all your energy (and most of your marketing budgets) from, say, 1920 through 2017 telling consumers the most important thing is buying branded products at the lowest possible cost, they’ll start to believe it. That belief is the core enabler of online commerce and goes a long way to explaining the success of Amazon and others. Add a subtext that — after price — convenience is king, and it’s amazing anyone goes to a physical store. The problem traditional retail faces in a multi-… Read more »
Ben Zifkin
11 months 29 days ago

The goal of online sales for brick-and-mortar isn’t to redeem, it is to compliment. As we all know, retail is a complicated industry being driven by more complicated business models and more complicated relationships with consumers. Online is simply one facet of this new world. This is not a see-saw model where real-world sales go down so online should go up (or vice versa).

Mark Price

Physical retailers hold an advantage over online stores — consumers can pick up their product on the very same day, even in the same hour. However, “bricks and clicks” retailers will only enjoy the business benefit of this strategy when they can seamlessly integrate online and offline experiences. Buy online, pickup in-store is a compelling program, but prices, products, support and branding must be unified into a true omnichannel experience. Then these retailers can begin to see gains to help offset the in-store only declines.

Bob Phibbs

I just shake my head when retailers report “double-digit increases in online commerce.” Sure, but it was 10 percent of your sales so you improved it 15 percent — it’s a small piece of the pie to begin with.

Yes, customers who used to go to your brick-and-mortar store and feel good about that memory will shop you online. But let’s be clear here — the much greater opportunity is to do everything in your power at the physical store level where still most shoppers are.

Increase those sales 3 percent and you’ve accomplished a lot. That takes a serious embrace of being a brick-and-mortar retailer — not parroting every other retailer on how e-commerce is exploding. It is — for Amazon, the rest are also-rans.

Shep Hyken

The “big guys” will have to adapt more quickly to stay competitive. The magic between in-store and online is in the mix. Today the online version of a brick-and-mortar store can’t be an after-thought or an add-on. It must be treated as a flagship store. Recognizing how consumers are moving between the two channels is important. Each brand will have its own version of what’s working, what’s not, what percentage of customers buy from one channel over another, etc. The brands have a great reputation they must use to compete in all channels.

Mohamed Amer
I’ve shared my view in the past about retail becoming a hybrid model where digital and physical retailing meld together in ways that makes discussions of specific channels almost meaningless. The key is to take the full customer experience from the customer perspective and not from the retailing side. Taking a different way of looking at today’s question, we can look at another major shift in IT: going from on premise software to cloud computing. At first it was vilified by some tech titans, then embraced, and now is considered the future delivery and consumption model. Industries have come to embrace cloud computing for the agility, flexibility and cost it provides; yet, they are tenaciously hanging on to some on premise (or hybrid) footprint for strategic and security reasons. The ongoing shift in retailing from physical to online may not have similar path or pace forward, but it’s instructive nevertheless to see how we tend to oppose any change to the status quo for what seem to be good strategic reasons. Instead of thinking of… Read more »
Craig Sundstrom

Short answer: no.

Long answer: in theory it’s certainly possible, after all they have money and merchandise and experience; anything someone else can do they can do too … in theory. But in reality, just as they have those legacy (perceived) advantages, they also have legacy disadvantages as well (even if it’s just in their way of thinking). JCP or Macy’s or even Sears COULD have started Amazon; but they didn’t … and they aren’t likely to start the new online businesses that drain away from their sales — both in-store and online — either.

Sky Rota
11 months 29 days ago
No. Online sales will continue to grow, however, it has nothing to do with their brick & mortar versions. The overheads/rents and payroll are too high to keep the psychical stores open. Macy’s is proof; even though their online sales are doing well, they cant save the stores. They will be in a viscous circle if they keep trying to save the brick & mortar stores by wasting their online earnings to keep the stores open. They are a sinking ship. It is sad to see stores close down because that means loss of jobs. People have to start learning how to get into more relevant fields of work like online stores and becoming an expert in a field. That’s what our generation knows. We can’t just come out of college with a business degree. It has to be a specific degree in a specialized field. We have to be an expert at something. That’s the only way we are going to make it in our future. Mr Price, I’m sorry but no one wants… Read more »
Doug Fleener

The fact is there are just a lot more people taking a slice of the consumer pie, so most older established stores are getting a smaller slice. The really smart retailer will not only get some share of the online sales, but focus on growing their share of in-store sales. There is still a lot of customers out there shopping on a daily basis. The problem is, most stores aren’t giving a really good reason to shop with them.

Brian Kelly
11 months 29 days ago

No, online cannot solve the problem of an irrelevant selling model.

This past Holiday, Target posted a 30% comp online and in total decomped 1.3%. Along with Walmart and Kohl’s all 3 significantly invested in digital and didn’t keep pace with the industry 3.6% lift this holiday. Yet, some consider all “genius” at digital.

What’s gone wrong?

Fundamentally, these brands have not altered the selling model to ensure relevancy to shoppers. Somewhere in their assortment, price, in store experience, and promo, they’ve lost sight of their customers. There is no better example than Sears in hoping to win digitally without fundamentally altering the selling model to ensure shopper relevance.

It all starts with understanding the shopper. Or as we like to say, “retail ain’t for sissies.”

Adrien Nussenbaum

Customers expect to be able to buy what they want, when they want, and where they want. Omni-channel retailers have the opportunity to leverage more channels than pure-plays, but must offer a compelling online experience, as well. Connecting the in-store experience to online (like store to web buying if the physical inventory is not there) creates more chances to capture the sale. It is the full customer experience — not just on-line or just off-line — that will lead to increased conversions and growth.

Dave Nixon
Dave Nixon
Data Analytics Solutions Executive, Teradata
11 months 28 days ago

It will be tough for those types of retailers who have long held the belief that the store experience was the main place to invest for the past decade or so. Those three brands are good examples of retailers that have hung on too long to physical retail over the increasing demand for online retail as digital transformation becomes more commonplace.

Now, they are now playing the game of “catch up.”

For some, it will be too late (The Limited, etc.). For others, that can be more nimble than before, they may save their brands using online methods and pivoting to face the opportunity there.

William Passodelis
11 months 20 days ago

Brick and Mortar institutions can be successful building online if they decide to.

Online increases should be done — and MUST be done. Improvement of the in-store experience is a must. Be compelling and be a place that the customer WANTS to go.

"All of these stores and others have opportunities to improve their assortments, customer service and overall store experience."
"Some of today’s largest retailers will survive this transformational period; they will be primarily an online shell of what they were."
"The fact is there are just a lot more people taking a slice of the consumer pie, so most older established stores are getting a smaller slice."

Take Our Instant Poll

How likely is it that brick and mortar retailers such as J.C. Penney, Macy’s and Target will build their online businesses to a point where they offset declines in store traffic and sales?

View Results

Loading ... Loading ...