Business as Usual: Brick and Mortar Stores in Trouble

Consumers around the globe seem to be showing no signs of a decrease in confidence and spending habits. However, the spending gap between traditional brick-and-mortar venues and e-commerce firms continues to widen, and recent sales figures confirm such a trend.

Data compiled by Adobe Analytics indicates that Black Friday shoppers spent 7.4 billion USD through online outlets in 2019, up from 6.2 billion USD in 2018. Thanksgiving sales also experienced an uptick in sales volume, with 2019 figures totaling 4.2 billion USD, up 14.5 percent from 2018.

 As Cyber Monday—the day specifically dedicated to e-commerce firms offering customers lucrative deals on millions of items—approached, Adobe Analytics projected aggregate sales of 9.4 billion USD. This sales figure would represent an 18.9 percent increase from one year ago, as well as the largest Cyber Monday in history by total sales. As it is clearly evident that consumers are maintaining strong spending habits with respect to the retail sector, the vast majority of such spending habits are geared toward the e-commerce industry.

According to additional figures from Adobe Analytics, 61 percent of Black Friday traffic to retailers came in the form of consumers ordering products on a smartphone. On a macro-scale, average order value from Black Friday 2019 increased to 168 USD, a 5.9 percent increase from 2018. With total online sales up about 20 percent from one year ago, it should be apparent that consumers are becoming more comfortable with conducting the majority of their holiday shopping from their fingertips, as opposed to walking into traditional brick-and-mortar stores. 

I can personally attest to this shift in consumer preferences. After gathering a list of which friends and family members I planned on purchasing a gift for, I logged onto my computer and added the appropriate gifts to my Amazon Shopping Cart. The process took about 30 minutes to complete and did not require me to leave the comfort of my cozy bedroom. To top it off, Amazon offered some extraordinary deals to complement their famous “Free Two Day Shipping” policy for Prime Members.

The point of my anecdote is to describe how the growing shift toward a more convenience-based shopping season has left brick-and-mortar retailers in the dust. According to Reuters, “Numbers from ShopperTrak, which is part of retail data firm Sensormatic Solutions, showed that visits to stores fell a combined 3 percent during Thanksgiving and Black Friday compared with the same days in 2018. Shopper traffic on Thanksgiving evening increased by 2.3 percent year-over-year but was dragged down by Black Friday, which fell 6.2 percent from a year ago.” These figures indicate that foot traffic to retail chains on Thanksgiving Day is increasing, however, the more profitable Black Friday shopping day is steering further away from traditional stores. 

Disappointing traffic flow and changing consumer sentiments have caused investors in the financial markets to place large bets against brick-and-mortar retailers. According to The Wall Street Journal “short positions against the SPDR S&P Retail fund, one of the biggest retail exchange-traded funds, last week hit 441 percent of the fund’s available shares. That was twice the percentage of shares investors shorted at the same time last year and the highest level in roughly eight months.” The Journal continued, “several investors said their bearish bets are based on retailers’ struggles in a highly competitive landscape and consumers’ growing preference for digital shopping.”

I happen to share the same skepticism with pessimistic investors betting against brick-and-mortar chains. The data has continued to indicate a growing preference for online shopping experiences. The ease and lower opportunity cost of purchasing items through outlets such as Amazon and Alibaba have made stores such as Macy’s and Kohl’s less appealing to both shoppers and investors. It should come as no surprise that retailers like Walmart and Target, who have established a strong online presence, have wildly outperformed those who have not, such as Gap and JC Penney. If those struggling firms are to have any chance of turning themselves around, they must adapt to suit the broad consumers preferences. Otherwise, sales will continue to fall short.