For Retail and Newspapers: Growing Online Revenues Are Key


  • Buying online is increasingly attractive to consumers.
  • Retailers and newspapers are the same: survival will require significant online revenue streams.
  • There will be winners and losers from the “online transition”.

Online Sales

I earlier concluded that newspapers will only survive if they can figure out how to make money off their web sites. And today, we hear about struggling retailers, e.g., J.C. Penny (JCP), Sears (SHLD), Best Buy (BBY), and Radio Shack (RSH). These all have failed to make a smooth transition from store sales to online sales. The fact that J.C. Penny and Sears are on this list is somewhat ironic – they were the original mail order catalogue companies, the obvious precursor to online retail.

The world is changing: people are increasingly choosing to buy online. Why? Because it is easier, cheaper, allows one to make a more detailed comparison of products, and because online inventories are larger than any “bricks and mortar store” can carry. Of course, buying habits do not change overnight (in all areas, humans adapt slowly to technology change). But the benefits of online shopping are so apparent it is just a matter of time.

Table 1 compares the growth in US retail with online sales. And yes, the online sales share is still 6% of the total. But it is growing rapidly as more and more people realize its attractions. Demographics will accelerate its growth – younger people will buy more online than older people.

Table 1. – US Retail and Online Sales (mil. US$)

Source: US Census

The online sales appear quite broad-based. As Table 2 indicates, there are a number of small firms in the business, with many of their sales being brokered by eBay and Amazon.

Table 2. – Online Sales by Size of Firm

Source: ReferralCandy


The growth of online sales will depend on whether sellers see profits. Profits will depend on:

  • Labor costs;
  • Shipping costs;
  • Whether there are economies of scale in procurement;
  • Taxes – online sales still don’t have to pay taxes in some states;
  • Consumer preferences (more about this later).

As Table 3 indicates the labor costs of selling online are have fallen sharply and are now only one-third of retail’s. Putting it another way, online “productivity” is now three times higher than retail.

Table 3. – Retail and Online Sales Productivity

Sources: US Census and US Bureau of Labor Statistics

Selected Online Sellers

It is interesting: retailers trying to make the online transition are reluctant to provide data on their online sales, so much so that the Securities and Exchange Commission (SEC) has started requesting this information, arguing it is “material” information for investors. According to Wall Street Journal reporters Banjo and Zobrio, Fifth & Pacific, the owner of “Kate Spade” products, told the SEC in May that it didn’t want to reveal the contributions that e-commerce made to its overall sales, because the separate disclosure wasn’t “relevant to investors.” The SEC questioned that reasoning, pointing out that Fifth & Pacific a few months earlier had claimed on a conference call with investors that it had a “ravenously growing business in e-commerce.”

Numerous retailers including Target (TGT) and PetSmart (PETM) claim that separating out online figures does not give an accurate picture of their sales gains because customers continually shift purchases between their stores, websites and mobile-phone applications. They argue they don’t care how a customer completes a purchase as long as they don’t buy from a competitor. There is some merit to this argument: after all, Apple (AAPL) has been quite successful in making store and online sales. It appears to use its stores in good part as marketing vehicles.

While there is a paucity of online data, Table 4 presents rough estimates of total and online sales for a number of companies. Alibaba, to be listed shortly in New York, is by far the largest online seller in the world. Its president suggests that its sales will exceed US companies’ total online sales in the next few years. eBay (EBAY), a broker to the online market, is second followed by Amazon (AMZN). Staples (SPLS) appears to be making a very successful transition as does Apple. Wallmart (WMT) also appears to realize how important online sales will become and is rapidly ramping up its online work force. Target, J.C. Penny, Sears, Radio Shack, and Best Buy appear to be having trouble with the transition.

Table 4. – Total and Online Sales, Selected Companies (bil. US$)

Source: Assembled from variety of sources by author including WSJ.

L.L.Bean, a private firm, started as a catalogue company and continues catalogue sales along with store and online sales. Its total revenues of $1.52 billion are generated by 11 US stores, 20 stores in Japan, and 62 in China. It also mails catalogues to 160 countries.

Looking Forward: Some Near-Random Guesses on Where Online Sales Will Flourish

Experience suggests that guesses on where the evolving information revolution will take us are dangerous. Never mind. As indicated earlier, online sales growth will depend largely on economics, the relative costs of getting goods to consumers in different ways. But consumer preferences and habits are also important. There is certainly a convenience element in getting goods delivered but there are some items shoppers will want to see physically before buying. These include fresh food, goods with an aesthetic dimension and unbranded items.

Supermarkets: while packaged foods with well-known brands could be sold easily on line, people want to examine fresh foods in person. Consequently, supermarkets will probably be a significant stalwart against the online press.

While strip malls have an uncertain future, visits to indoor malls, especially in the winter, have become a major form of recreation for American families. Liquor and cosmetic stores have an aesthetic dimension and will survive.

Consider next retailers likely to lose significant market segments to online sellers.

  • Drug stores: In addition to providing prescriptions, drug stores have become large convenience stores where all goods are branded. Aside from cosmetics, there is really nothing they sell that could not be sold online. Certainly having doctors send prescriptions to drug companies for online fulfillment would be much more efficient and preferable to current practices
  • Retailers for most clothing, shoes, office supplies, books, hardware supplies, and movies are losing markets.
  • Consider next real estate, investments, and autos. Ten years ago, realtors, stock brokers and auto salesmen provided us with nearly all the information on these purchases. Today, this information is on line. Local realtors, brokers, and auto sales people will lose a lot of business going forward to online sellers. Again, these retailers will have to make the online transition or lose sales.
  • Gambling: at least in the US, being able to gamble online has reduced attendance at gambling locales such as horse races and casinos.
  • Sporting events: nearly all these events are delivered to consumers online. How much longer will these events be played before sell-out crowds? How many more terrorist bomb events have to occur (Boston Marathon) before people start staying away from such events?
  • Gas stations – it is not convenient to buy gas online. But if we switch to electric plug-in autos, this will change.


Is online-sales growth an indicator of whether retailers will succeed in the long term? The WSJ reports that some professional investors think so. Personally, I think such bets are risky. But with online sales growing, the future of shippers should be rosy. As possible investments take a look at FedEx (FDX) and United Parcel Service (UPS). DHL and the US Post Office should also be good investments if they ever go public.

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