Gerry Harvey’s American nightmare
Retailers shift into overdrive during the holiday season. They hire casual workers by the thousands, expand business hours, and restock their shelves faster than at any other time of the year.
Of course, that’s as long as shoppers keep walking in the door. In what should be chilling news for the established bricks and mortar retailers in Australia, it’s the online retail space notching up all of the big wins in the US this December.
Sure, we knew that already, but the sheer scale and breadth of the change should make for uncomfortable reading for Harvey Norman’s (ASX: HVN) Gerry Harvey and the bosses of our department and electronics stores, David Jones (ASX: DJS), Myer (ASX: MYR) and JB Hi-Fi (ASX: JBH).
The news isn’t all bad – overall, US shopping is trending in the right direction. But it’s not great for the incumbents with physical stores:
1. Package delivery expert FedEx planned to move 19 million packages through its network on one day - Monday, December 10. The company says that will make it the busiest day in its history, with deliveries to be processed at an estimated rate of 200 per second. FedEx expects to ship a record 280 million packages in total in the Christmas period.
2. The world’s largest retailer, Wal-Mart, stores saw over 20 million visitors on Thanksgiving Day. And on ‘Black Friday’ – often the biggest retail sales day in the US – the company logged 10 million register transactions in just four hours. At peak shopping times, sales were rung in at a rate of 5000 per second!
3. Online spending topped $US1 billion for the first time on Black Friday, according to comScore. And that was just the beginning. Daily internet sales figures have eclipsed that milestone twice since, led by the $US1.5 billion haul on Cyber Monday.
4. Amazon.com's sales are expected to hit $US22 billion this holiday quarter. That figure is more than 40 per cent of all of last year's e-commerce spending over the same period. It would also represent more money than was spent on all online shopping - across all merchants - for the first 32 days of this year's holiday season.
5. Credit cards are getting a workout, too. Visa processed $US5 billion over the four-day period from Black Friday through Cyber Monday. That's an increase of 20 per cent from last year's figure. Cyber Monday alone accounted for $US2 billion of Visa's purchase volume. While total spending leapt, Visa saw a small decline in average spending, indicating that shoppers are expanding the universe of products that they're shopping for online.
There are some really bright spots here. Despite the US’s somewhat fading star as the world’s largest economy, its consumers really do set the tone for global economic activity. After years of cautious consumption, a return to the stores is exactly the economic tonic required to help grease the wheels of capitalism – leading to more jobs and therefore more spending. It’s a virtuous circle.
That sales were up in places like Wal-Mart, and department store Macy’s, also helps counter any concern that the jump in online sales was merely a shift from physical retail.
However, the enormous surge in online sales is taking almost all of the oxygen away from bricks and mortar stores. With ever-increasing rents and staff costs – and with deflationary pressures on items like televisions and computers – the canary is singing loudly in the coalmine.
Online is not the only future for retailers with physical stores. For the foreseeable future, people will still want to see and touch some products before they buy them.
But the US lessons are clear. The tidal wave is coming. The anecdotal or predicted impacts have been talked about for years. The data now shows the size and speed of this change – and that it is upon us.
Retailers have a little time to respond – but respond they must. Inaction may yet see them swept away.
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Scott Phillips is a Motley Fool investment analyst. He owns shares in Amazon.com, Wal-Mart, Harvey Norman and David Jones. You can follow Scott on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).