Online, Mobile Crush Everything Else This Holiday Season

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by: Wolf Richter

This shift has broader implications for the US economy and jobs.

"Is [Black Friday] the mayhem that it might have been eight or 10 years ago?" Wal-Mart (NYSE:WMT) U.S. CEO Greg Foran told the Wall Street Journal. "I think that world is gone."

According to RetailNext, the number of people visiting brick-and-mortar stores on Thanksgiving and Black Friday declined 4% from last year. According to ShopperTrak, it declined 1.6%.

Yet, online sales in the US over those two days surged 18% to a record $7.9 billion, according to Adobe Analytics, which tracks transactions at the largest 100 US online retailers.

As of 10 a.m. EST Monday, Adobe expects Cyber Monday online sales to surge 17% to $6.6 billion, making it the largest online shopping day in US history, with sales from smartphones soaring 41% year over year. ​

The National Retail Federation had estimated earlier that holiday sales - excluding automobiles, gasoline, and restaurants - would rise by up to 4% to $682 billion, from $656 billion in 2016. Most of that growth will come from the surge in online sales. If $108 billion of these sales are online sales, as has been estimated, the remaining $574 billion would be brick-and-mortar sales.

At the high end of the estimate, 4% in growth of holiday sales pencils out to be $27 billion, composed of $17 billion in online sales growth and $10 billion in brick-and-mortar sales growth. In other words, brick-and-mortar sales would inch up only 1.8% from $564 in 2016 to $574 this year, even as online holiday sales would surge 17% from $91.7 billion in 2016 to $108 billion in 2017.

Even moribund Sears Holdings (SHLD) is trying to jump on the online bandwagon. On Tuesday it announced, among other promotions, free home delivery for the holiday period of all orders over $399 bought online at its Sears and Kmart sites, particularly to encourage purchases of "big-ticket items."

In the third quarter, e-commerce sales jumped 15.5% from a year ago. But this sales surge comes out of the hide of less than half of brick-and-mortar retail sales, particularly department stores, toy stores, and the like, with the other 54% of brick-and-mortar retail sales being largely online-resistant for now, including new and used vehicles (21% of retail), groceries (13% of retail), gasoline (8% of retail), and consumption at restaurants and bars (12% of retail).

Holiday sales fall squarely into the part of sales where brick-and-mortar is under heavy attack from online sales. Hence, every major retailer's effort to get some excitement going online - because this is where growth is.

This shift has broader implications for the economy and jobs. Employment in the traditional retail sector has been falling all year, shedding about 100,000 jobs (seasonally adjusted) since January, after rising steadily from the trough of the Great Recession, and the first such decline since the Great Recession. Back then, total retail sales were dropping hard. Now total retail sales are rising, but brick-and-mortar operations are closing stores and filing for bankruptcy.

At the same time, retailers are building up their fulfillment centers and supply chains to deal with their online sales. For the holiday period, seasonal hiring was strong in the online sector at fulfillment operations:

  • Amazon (NASDAQ:AMZN) said it would hire 120,000 workers, spread over 30 states.
  • Wal-Mart said it would hire about 5,000 workers for its online operations but none for its brick-and-mortar stores, though it would give current workers more hours.
  • Macy's (NYSE:M) said it would hire 18,000 workers at its distribution centers (they serve its stores and fulfill online orders).

These early indications show that online holiday sales, powered also by surging mobile sales, will do exceedingly well this year, while brick-and-mortar holiday sales will barely budge from last year, as the weaker players - such as Sears, Kmart, and bankrupt Toys "R" Us - are sinking into deeper trouble. At the same time, supply chains and distribution networks are adjusting rapidly to the changing reality in retail.

But some big retail sectors are still resisting the encroachment of online vendors. Read... "Is E-Commerce Really Crushing Brick-and-Mortar Sales?"