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E-commerce growth outpaces brick-and-mortar, analysts say

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From 2001 to 2009, e-commerce sales had experienced a 2.6% annual retail market growth, but that has all changed.

Since 2009, the e-commerce market share has grown from 4.2% to 8.4% in the third quarter of 2016, according to analysts with commercial real estate firm Cushman & Wakefield.

And the biggest company in the e-commerce field … Amazon … saw its Q4 2016 sales grow 22.4% with sales of $43.7 billion and $136 billion in sales for the year. To put that in perspective, that is higher than the gross domestic product of Guatemala, which is $126 billion. Of Amazon’s sales, $94.1 billion were from Amazon-owned products.

“Amazon offers a tremendous universe of eyeballs for a small retailer that just is not scaled to do its own marketplace,” said Ben Conwell, e-commerce fulfillment practice group leader for Cushman & Wakefield, in a call with journalists describing retail sales trends and the impact on supply chain and commercial real estate.

During the peak sales season in the U.S. — from around Thanksgiving to Christmas — Amazon accounted for 38% of online sales and 43% of all online sales for the year.

Other chain retailers had fourth quarter sales growth in the online market. Conwell said Target and Macy’s had between 30% and 40% growth in the fourth quarter, but Apple experienced a 66% increase in its online sales during the quarter.

“We are not just buying lots and lots of phones, but we are buying lots of goods with our phones,” Conwell said.

Cushman & Wakefield’s research also showed the Thanksgiving weekend from Black Friday to Cyber Monday remained among the strongest online purchasing times of the year with 15% online sales growth over the entire five-day weekend.

“People come into the stores looking for discounts, but margins have continued to drop,” said Garrick Brown, head of retail research for Cushman & Wakefield for the Americas, in the call. “You might not see the traffic you expect on Black Friday, but there is a surge that happens later in the season. It brings a challenge for retailers to decide when to offer their biggest discounts.”

And, online retailers are responding with their own discounts as online sales peaked earlier in the holiday shopping season as compared to 2015. Conwell said the growth continues and the trend shows the timing of the growth has been consistent, which may change in 2017.

“I think we will see earlier loading with promotions online and with brick and mortar stores,” Conwell said.

The impact to supply chains has come in returns. Conwell said 50% of the top 100 retailers in the U.S. offer some kind of free returns. Of the online returns made during the fourth quarter, 23% of those were due to the wrong items being sent.

The average time for stores to process online returns was eight days with Amazon averaging just one day and Macy’s coming in at three days. Kohls averaged 17 days in processing online returns.

“Some ways to improve the customer experience is to improve on those return processing times,” Conwell said.

Delivery services UPS and FedEx had strong gains in on-time delivery during the season. According to Conwell, FedEx had 96.2% on-time delivery while UPS had 93.1%.

Another impact to the supply chain is how online stores are preparing for the rush of shoppers. Conwell said retailers, even brick and mortar stores, have to walk a fine line so as not to understock in the beginning and overstock as the holiday shopping season winds down closer to Christmas.

“Amazon and companies like it are packing the channel because they are expecting the peak,” Conwell said. “They are taking into account not to be short early, but also to not have over stocking later in the season.”

Conwell said online retailers will start to take a closer look at the mainland China market as retail growth in 2016 was 26.2% to $752 billion and online represented 15% of those retail sales. He said the forecast suggests a 177% increase in e-commerce spending by shoppers in China by 2020.

Reach Matthew Clark at 864-720-1222.

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