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How E-Commerce Is Shaping The Future of Retail

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e-commerce

noun, e–com·merce \ˈē-ˌkä-(ˌ)mərs\ : the buying and selling of goods and services over the internet

The internet has altered the way of shopping. E-commerce retail sales increased 12.6% from $89.8 billion in 2015 to $102.7 billion in 2016, adjusted for seasonal variation, and accounted for 8.3% of total retail sales in Q4 2016 according to the U.S. Census Bureau. With the Los Angeles County unemployment rate at a low of 4.7%, more consumers are spending money in restaurants, retail stores, and online.

As online sales rise, traditional big-box retailers like Kmart and Target are consolidating brick-and-mortar stores to cut costs and instead focusing on select locations.

“With the exception of flagships and highly profitable storefronts, we are seeing retailers shutter an increasing number of stores, some that have been open for decades,” said Sophia Hwang, research analyst at Cushman & Wakefield.

Other big-box retailers with substantial chain closures in the past few years include Macy’s, Sears, Kohl’s, JCPenney, and Walgreens, while clothing retailers American Apparel, Wet Seal, The Limited, and BCBG Max Azria have all recently announced closures as well.

As the digital age demands unprecedented speed for consumers around the world, the brick-and-mortars facing slow store traffic are going by the wayside and businesses are instead taking to the internet to boost sales.

Shoppers at a Walmart in Los Angeles

Shoppers at a Walmart in Los Angeles

Even Walmart, one of the largest retailers in the world with over 11,000 locations, has embraced e-commerce. In 2016 the company acquired e-commerce site Jet.com for $3.3 billion to increase its online presence and benefit from the site’s established shopping platform, bringing it one step closer to leading online retailer Amazon. This combined with store consolidations have proven beneficial for Walmart, who posted a third consecutive quarter of double digit online growth.

For retailers with both physical locations and an e-commerce platform, one trend many have adopted is the “click and collect” concept. Buy online pick up in store (BOPIS) has gained massive popularity in recent years, as there are benefits for both the shoppers and retailers alike when executed correctly. Shoppers appreciate the speed and convenience of picking up in person and not paying for shipping costs and for the retailers it is more cost effective to fulfill orders to a store rather than shipping directly to consumers.

Although many big-box retailers are consolidating locations, not all stores are closing. In fact, many companies who started out as online-only retailers, or “e-tailers,” are opening physical stores. These brick-and-mortar locations allow consumers to try on and feel their products before purchasing versus just seeing it online and enhances the customer experience. Warby Parker, Fabletics, Bonobos, Amazon (books and convenience concepts), and Indochino are among those embracing the brick-and-mortar store concept.

Warby Parker at Alchemy Works in DTLA's Arts District

Warby Parker at Alchemy Works in DTLA’s Arts District

Despite these “clicks to bricks” exceptions, it is inevitable that we will see fewer physical stores as companies shift their efforts to where the money is – the internet.

“The heightened levels of closures recorded in 2016 is likely to be surpassed in 2017,” said Garrick Brown, vice president of retail research for the Americas at Cushman & Wakefield. “We anticipate as many as 5,000 major chain closures in the coming year — a 25% increase over 2016.”

Brown added, “The internet does the job of the big-box store more effectively, at a cheaper price point and with a more pleasant experience.”

Sources: Cushman & Wakefield Research, U.S. Census Bureau, Moody’s Analytics, iVendRetail, Internet Retailer, The Huffington Post

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