Target “Misses” It’s Online Projections. And We Care…why?
November 19, 2015 2 Comments
Saw this story on RetailWire titled “Does Target have a problem online?” (click here).
The gist is that analysts are worried about Target because they exceeded the national average of 15% online growth. But their online growth at 20% was less than the 30% that had been projected. (Same thing happened at WalMart.)
And we care…exactly why?
The theory of “omnichannel” is that the consumer doesn’t care about our silos. So why should we be reporting and analyzing numbers based on those same silos?
Even more, we should be listening to the weak numbers from Macy’s and Nordstrom’s and wondering why their new profits are suffering so badly despite their huge online investments.
So is it any surprise there are weak online categories at Target? At Walmart? Absolutely not.
Yes, a healthy online business is important for a retailer to be overall healthy. And certainly it’s good that online growth doesn’t appear to be tailing off. But a consistent 11% growth of 7% of sales is nice but not hugely exciting (Census data for eCommerce growth).
Perhaps 10% is a natural limit. From all my experience, I’ve come to believe that web sales for retailers will stick below 10% of total revenues. We are seeing similar numbers from most industry analysts and prognosticators (despite the fact that back in the late 1990s many analysts bought into the idea of brick and mortar going away).
Even if the census indicated average growth of 11% remains constant (and it’s impossible for it to so do forever), it would be 20 years before online sales made up half of a retailers sales.
The fact that we’re seeing struggles like these from Walmart and Target seems to confirm this. The weak numbers despite Macy’s and Nordtrom’s investments online also lends credibility to the 10% idea. (And, we saw recently that eBook sales had a very weak recent quarter. It might be an anomaly. But it also makes sense that there’s a stability point where book sales and ebook sales are in balance.)
Maybe, in fact, we are finding that if a company has brick and mortar, then the natural place for online sales to be is around 10%. (A brief look through results indicates Apple’s retail stores run in the under 15% range. But while there are going to be exceptions, this rule seems to work for general or specialty retailers.) This chart from Census data currently shows eCommerce overall to be at 7.4% of retail sales.
Watch out for the “disruption” arguments of the digerati. One reason that any of this discussion seems a surprise is that stock analysts and the national press tend to give prognostications of “industry disruption” coming out of Silicon Valley far more attention than they deserve.
We have plenty of experience now to know that digital things happen and have great power. But they aren’t changing “everything” like the digerati like to tell us. Note, for example, that despite a full 2 decades predicting the demise of television, TV remains the single most powerful medium for driving retail sales.
Companies, analysts and the industry should NOT be focusing heavily on these silo numbers. They should not be criticizing companies for “missing” online silo numbers. I say let the numbers fall where they may.
Because here’s the really critical truth: The incredible investment required to perfect online sales looks to be wasted. The majority of that investment would produce far higher return INSIDE the stores. You know. That place where consumers spend the most money, put more incidentals into their basket, and where they browse and shop far better than they do online.
Perhaps more critically, L Brands CEO Leslie H. Wexner (Victoria Secret, etc.) recently observed “that a muscular brand will bring web sales naturally, and that focusing on web sales is, essentially, backward.”
There’s tremendous truth in his observations. Seems to me it’s time for retailers to choose to embrace their significant competitive advantage…their stores…and quit chasing digital rainbows. Online growth will happen. But only if your stores thrive and your brand remains strong.
Copyright 2015 – Doug Garnett – All Rights Reserved