Department, Specialty Stores Losing E-Commerce Ground

August 17, 2017

Following Antony’s latest research and analysis on retail’s new operating model, HFN covered the study.


Although department and specialty stores have made significant inroads in e-commerce, the rate of that growth has slowed and market share has been lost to Amazon and discount retailers, according to Antony Karabus, CEO of HRC Retail Advisory.


Retailers “must develop a new economic operating model,” Karabus said in a summary of his new report, “Trending Toward a 50/50 World of E-Commerce and Retail Stores.” He joins the chorus of retail advisors calling for retailers to offer a more experiential approach to their shoppers.


Over the past five years, the e-commerce penetration of department and specialty stores has climbed significantly as they’ve rushed to compete with each other and with Amazon, HRC said. Karabus estimated that the penetration of e-commerce as a percent of total sales for department stores rose from 6.5 percent in 2011 to almost 19 percent today.


But a big chunk of that top-line e-commerce growth was generated by department and specialty stores in 2011 and 2012, and very little has come since, according to Karabus. At the same time, the overall sales volume at department and specialty stores has declined in those five years, and stores have closed. Market share has been transferred to Amazon, discount retailers and to “extreme value” players such as Dollar General, Karabus wrote in his report summary.


Total retail merchandise sales—not including grocery, cars, consumer electronics and building materials—have grown at a compound rate of 2.9 percent since 2011, according to Karabus. Combined with the number of bankruptcies and store closures, that should have produced sales growth but did not, he said.


Updated economic operating models should take these facts into consideration when calculating an acceptable profit performance, Karabus advised. “Incremental changes will not achieve this goal, at a time when the rate of disruption is escalating.”


Like many other analysts, Karabus suggests retailers create experiences that are compelling in their stores. “Consumers will always want the experience of shopping in physical stores,” he said.


HRC interviewed and conducted primary research with top-level executives at more than 30 of its retail clients in the apparel, home, discount and department store sectors, more than 90 percent of which are public with annual sales of $240 million to $15 billion.


Read the full HRC Retail Advisory study “As Market Moves to 50% Online Sales, Retailers Need to Respond – With Compelling Service and Experiences“.

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