TrafficCourt

Much Ado About Internet Retail

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A tidbit that's getting picked up by dozens of news outlets, is that a new Shop.org study shows that spending on clothing has now surpassed spending on computers and software on the Internet. This is supposed to be a big signal that e-tailing is finally taking hold the way the pundits predicted in the late 1990s during the dot-com surge.

To wit:

In 2006, revenue from online sales of clothes reached $18.3 billion in the United States, surpassing online revenue from personal computers, printers and word-processing programs, which totaled $17.2 billion, according to a report that was to be released Monday by a major trade group.

The surging popularity of clothing on the Web defies predictions that fashion - which is hard enough to buy in stores, with the aid of sales clerks and fitting rooms - would be difficult, if not impossible, to translate onto the Internet.

Most shoppers, it was feared, would never abandon the habit of trying on clothes to assess the feel of fabrics and the fit of a given size, which varies a lot by brand.

"If you are looking for a sign that online retailing has really gone mainstream, I don't think you can find a better one than this," said Scott Silverman, executive director of Shop.org, the group that is releasing the report.

But most of the bold stories being broadcast lack some fundamental context. A story on CNN.com, though, provides some interesting figurest:

Total Internet-related sales are forecast to jump 19.1 percent to $174.5 billion in 2007, excluding travel, according to a new industry report Monday. The "State of Retailing Online 2007" report from the National Retail Federation (NRF) and Shop.org said total online sales this year, including travel, are expected to increase 18 percent to $259.1 billion.

That $259.1 billion figure sounds impressive at first blanch. But, as CNN notes, that includes spending on travel, which is not something that brick-and-mortar retailers sell. Yet even with that spending, all online sales put together in 2007 will still be about $100 billion shy of what Wal-Mart Stores will rake in all by itself, judging by its 2006 figure of $351.1 billion in sales. When you exclude travel, the online sales projection of $174.5 billion will be about one-half of Wal-Mart's sales revenues. Or looked at another way, online sales will be about what Home Depot and Costco rake in combined this year.

Similarly, the $18.3 billion figure for spending on clothes is roughly equivalent to what TJX pulled in all by itself between its TJMaxx, Marshalls, Winners, HomeGoods, TKMaxx, AJWright, and HomeSense chains.

And there's another important factor to consider. A glance at the list of the top 500 largest internet retailers reveals that quite a few are, in fact, traditional brick-and-mortar chains. The list of the top 10 internet retailers includes Staples, Office Depot and OfficeMax.

Is internet retailing a major trend? Of course. But even as much as its grown, it accounts for just 6 percent of all retail sales. The lesson is that to succeed that every retailer needs to consider being a Multichannel Merchant. But any talk of the death of brick-and-mortar stores, which this new study is sure to spark, will be greatly exaggerated.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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