Aug 15 2015
On Tuesday, August 18, retail juggernaut Walmart cut its annual earnings forecast. Citing unfavorable exchange rates and an increase in wages for its employees, the company also indicated that increased investment is improving the overall customer experience. While Walmart’s comparable stores sales grew by 1.5%, resulting in an overall increase in revenue, e-commerce sales grew by 16.0% (excluding currency fluctuations) in comparison, indicating that online sales have become markedly stronger than traditional brick-and-mortar sales. At the same time, Amazon.com recently surpassed Walmart in terms of market valuation by an estimated $20.0 billion in July. This disparity between e-commerce growth and traditional retail growth is indicative of a larger trend in which market share among traditional retailers is quickly becoming fodder to the fast-growing e-commerce market.
Consumers have gravitated toward online shopping as a result of online retailers’ price competitiveness, the proliferation with which the internet has become available to consumers and the overall convenience of using online services. As a result, over the five years to 2015, the E-commerce and Online Auctions industry is expected to increase at an average annual rate of 9.0%, increasing its share of total retail sales from 4.8% in 2010 to 7.8% in 2015. Consequently, traditional retailers, such as Walmart, contended with a substantial increase in competition from online-only retailers, and have attempted to improve customer service and develop their own online platforms in response. Some retailers have even shuttered brick-and-mortar locations altogether, resulting in stagnant establishment growth over the past five years.
As the overall cost to obtain an internet connection continues to decline, the possibility to shop on the internet has continued to become a stress-free experience. As a result, e-commerce is expected to continue gaining market shareover traditional retailers over the next five years. Between 2015 and 2020, IBISWorld estimates indicate that the E-commerce and Online Auctions industry‘s share of retail sales is expected to reach 12.7% in 2020, or an estimated $526.6 billion. IBISWorld expects certain traditional retailers will suffer more than others. For instance, over the next five years, the number of locations for the Hobby and Toy Stores, Record Stores and Camera Stores industries are expected to decline by 12.3%, 20.3% and 17.4%, respectively, which comprise some of the most-purchased products from online retailers. Nevertheless, while e-commerce is expected to continue growing at a breakneck pace, brick-and-mortar retailers are still expected to account for the lion’s share of retail sales, and are estimated to grow to $3.6 trillion in 2020.