Online sales will account for over 20% of total retail sales in seven years (more than double the 9% they represent today) as brick and mortar merchants focus more resources on the digital channel, according to a report published Thursday by Moody’s Investor Service.
Moody's said that “almost all non-food brick & mortar retailers are still too big,” however, and that most retailers must repurpose many of their stores to accommodate omnichannel efforts and “tactically close” many other locations.
But Moody's also cautioned that closing a physical location reduces a retailer’s presence in the market area, noting that online sales often decrease in zip codes surrounding a shuttered store.
Amazon is the likely victor of the e-commerce war, but retailers with brick-and-mortar stores can and are beginning to thrive online, in part thanks to their physical retail presence, Moody’s said. The report highlighted several moves by brick-and-mortar retailers to stay alive online, noting that Best Buy has beat back showrooming and boosted its online sales to 20%: In addition, Target has fared well after taking back its website from an outside vendor and getting assertive in mobile, Moody's said, adding that Wal-Mart’s $3.3 billion acquisition of Jet.com is a “turning point” and a “game-changer.”
Moody’s also said that investors should pay attention to aggregate dollar size and not percentage growth. “If Amazon grows its North American product sales by 20% ($14 billion), Wal-Mart merely needs 4% total U.S. store growth to match it,” the report said.
While e-commerce is generally viewed as a space that has matured since Amazon’s entry two decades ago, omnichannel efforts from brick-and-mortar retailers are ensuring that e-commerce remains in a state of disruption, Moody's contends. Some efforts (like Toys R Us’ revamped website) remain untested, and many retailers, like Target, are playing catch-up. But they are indeed catching up, and stores are key to their success, by serving as logistical fulfillment hubs and by associates sealing the deal on the sales floor.
Retailers needn’t be Wal-Mart to play on the e-commerce field, Moody's adds.
“While other major brick-and-mortar retailers may not have Wal-Mart’s unrivaled size, it still holds that well-run brick-and-mortar retailers will not only survive online, but can and already are thriving there thanks to leveraging their considerable physical assets,” Moody’s lead retail analyst Charlie O’Shea said in a statement.