NPD Group Blog » Is ecommerce the light at the end of the tunnel?

Is ecommerce the light at the end of the tunnel?

Monday, December 22nd, 2008
By Stephen Baker, Vice President, Industry Analysis

NPD’s newly released weekly ecommerce data for the first few weeks of the holiday shows, as it has in our monthly tracking all year, a considerable divergence in trends between brick and mortar retailing and online sales. In the weekly data we saw strong results, as expected, for ecommerce during the Cyber Monday week, but in addition we saw very strong growth -stronger than in Cyber Monday week - for ecommerce during Black Friday week. Sales growth in general was much stronger online than in stores for both weeks.

So, is ecommerce the light at the end of the tunnel for consumer technology retailing or is it a freight train, ready to crush physical retailing like Wile E Coyote in the old Roadrunner cartoons? It is fascinating that in the 10 years or so since Internet retailing burst into our consciousness that we are still asking this question.

Online sales are clearly outperforming in-store sales so far this holiday, and online is looking increasingly like in-store, following the same promotional calendar and focusing on the same goods. In the first two weeks of the holiday season our brick and mortar retail panel saw total sales decline about 7% overall. Our ecommerce panel saw sales jump 19%. In fact, from a growth perspective ecommerce saw a bigger year-over-year increase during Black Friday week than Cyber Monday week, which is touted as the crucial purchase period for the online buyer. Certainly the perception that online is less expensive is important now in these recessionary times, and that is true for specific items since there is more to offer. Online also caters to a more tech-savvy consumers, as well as offers better deals on more expensive products. We have also seen a considerably higher level of activity on the retailers’ web sites as they begin to leverage the value of their offline brand online. As retailers cut store openings and reduce capital spending on merchandising initiatives, driving consumers online can be a profitable way of maintaining growth without the increase in overhead that bricks and mortar requires.

Higher retails, lower operational costs, and more sales leverage are all reasons why retailers are pushing online and these same opportunities exist for the OEMs to look to drive some of their business online as well. For the manufacturers, online has a threefold opportunity; to increase their direct business, to cultivate web-only retailers who offer them access to different customers and products than other channels, and to participate in the growth that their brick and mortar retailers will see online.

All this is happening now with greater urgency as the slowdown in electronics sales and the consolidation among physical retailers makes it increasingly important that both brands and retailers look for their growth opportunities no matter where they may lie. Online is no longer an afterthought but needs to be an integrated strategy. What is not yet apparent is how the growth in online will ultimately impact the in-store experience and the communal nature of shopping. We are already seeing the infrastructure advantages of the internet that were touted during the dot com boom, things like disintermediation and online shopping comparisons becoming vitally important to retail and OEMs in technology as mass consumers move online. Will the ultimate buying experience move there as well? This holiday is likely to provide us with the first clues.

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