Ecommerce keeps crushing brick-and-mortar retailers, except in autos, gasoline, and food, but even there, the tide is slowly turning.
By Wolf Richter for WOLF STREET.
The Census Bureau reported today that ecommerce sales in Q2 rose by 6.6% from Q2 2023, and by 15.7% from Q2 2022 to $282 billion. But retail sales without ecommerce — so brick-and-mortar sales — inched up only 1.0% year-over-year, to $1.85 trillion, and were roughly flat with Q2 2022 (all figures not seasonally adjusted).
Since the end of 2018, ecommerce sales have soared by 121.6% (red line), while retail sales without ecommerce — brick-and-mortar sales — have risen only 28.6%, and note the stagnation since Q2 2022 (blue line and purple box).
Ecommerce has been growing at far faster rates than brick-and-mortar retail from the beginning. In the first half of 2020, ecommerce sales exploded, while brick-and-mortar sales fell. In the second half of 2020 and through the high-inflation years 2021 and 2022, they bounced back, but not enough to prevent the gap from widening further. But starting in Q2 2022, with inflation in goods beginning to fade, brick-and-mortar sales stagnated while ecommerce sales kept surging.
Walmart keeps saying the same thing quarter after quarter: Its ecommerce sales are booming – last week, Walmart US reported 22% year-over-year growth in ecommerce sales for its second quarter. And it reported that grocery sales are strong; it’s the largest grocer in the US. But the rest of the stuff at its brick-and-mortar stores is weak.
Many dozens of brick-and-mortar chain stores and countless regional chains and major independent stores that didn’t get the message about ecommerce and groceries – such as department stores – have collapsed into bankruptcy over the years and are gone, in a phenomenon that we’ve called since 2016, the Brick-and-Mortar Meltdown.
Ecommerce sales on a seasonally adjusted basis rose to a new record in Q2 of $292 billion (red in the chart below), according to the Census Bureau today.
On a not seasonally adjusted basis, the big spikes occur in Q4, the holiday shopping season. In Q4 last year, sales spiked to $323 billion (blue).
The share of ecommerce sales of total retail sales rose to 16.0% in Q2 2024, just a hair below where it had been in Q2 2020 (16.4%). In Q4 2023, during the holiday binge, the share of ecommerce sales had risen to 17.1%.
During the lockdown, when many retail stores were closed, ecommerce sales exploded, and the share of ecommerce sales of total retail sales spiked to 16.4% in Q2 2020, up from 9.9% a year earlier. Then as stores reopened, ecommerce sales continued to grow, but brick-and-mortar sales bounced back amid revived auto sales and gasoline sales. And so the share of ecommerce of total retail sales eased off the Q2 2020 spike but remained much higher than before the pandemic.
But in Q4 2022, ecommerce began to increase its share again as retail sales without ecommerce began to stall. The green line represents the prepandemic trend of share increases:
Some stuff is still hard to sell online.
Some things will never be sold online, such as gasoline; sales at gas stations account for about 9% of retail sales. But they’re gradually getting hit by a new factor: The growing share in the national fleet of EVs.
Groceries have been a tough one to crack for ecommerce in the US. And it’s a big part of retail: food and beverage stores alone account for about 14% of retail trade, not including general merchandise stores that also sell food, such as Walmart, the largest grocer in the US with reportedly a 24% share of grocery sales.
But some grocery sales have moved online over time. And online-only grocers have sprung up to sell specialty foods, such as Weee, which specializes in Asian and Hispanic foods, and delivers directly from its local fulfillment centers via its own fleet of vehicles and via contractors.
The largest retailer category, auto dealers, which account for about 22% of retail trade sales, have seen used-vehicle sales move online for years, and all the big dealers are doing it now, in addition to the online-only used vehicle dealers, such as Carvana. So that has been happening.
But new vehicle sales are under the rule of state franchise laws, which prohibit automakers from selling directly to consumers. While these laws are older than dirt, they had the effect of largely protecting new-vehicle dealers from ecommerce competition, but even three cracks are forming. And Tesla has found a way around the state franchise laws; it sells vehicles online directly to consumers. Some other EV startups do as well.
Ecommerce did that.
Department stores, electronics stores, book stores, record stores, gift shops, and just about all the stores the generally populated indoor shopping malls have been very vulnerable from day one, and ecommerce crushed them one after the other. All big furniture retailers have shifted a big portion of their sales to ecommerce business. One of the largest furniture retailers is Wayfair, an online-only retailer with $12 billion in sales in 2023.
The prime example are department stores, which in 1992 (as far as the retail sales data go back to) accounted for 10% of retail trade sales. By July, the brick-and-mortar sales of the few surviving department stores accounted for just 1.8% of total retail sales.
There isn’t a thing in a department store that you cannot buy online. And the surviving department stores all have big ecommerce operations. Macy’s is one of the biggest ecommerce retailers in the US. But it keeps closing its brick-and-mortar stores.
But brick-and-mortar department stores sales are in the process of vanishing. The heyday was the year 2000. Since then, sales have collapsed by 44% despite 23 years of inflation and population growth. Ecommerce did that.
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All this has to be true, I’m part of that shift myself. I’ve found an online source for powdered alcohol, but I don’t buy water for it online yet. Maybe if I try insufflation I can solve the need for buying water.
Anyway, with all this going on, I’m hopeful that I can finally get my dream house built on the cheap. A friend recommended me a great book on simple residential architecture called The Three Little Pigs. I’ve been wanting a brick shack ever since. I’m not into straw or stick frame built houses. I just need something simple and a roof over my head but I want it to be sturdy and a wise investment. I’m going to start calling around to masons to see if I can gauge if they are short on work so I can low-ball them.
I’m contributing to the brick & mortar meltdown. I haven’t been to a mall in the last 5 years and buy 90% of my consumables on-line except for food and hardware store items. I’ve even started buying clothes on-line
Our local thrift shop is an amazing source of well made U.S. or European items often no longer for sale new. Button down shirts are $125-$150 at Brooks Brothers new with tax. $120 plus at Nordstrom’s. Thrift store has them at $4.
Shopping once a week has furnished our entire house, most of wardrobe, garage etc.
High quality cookware, hand tools, stationary, artwork, tennis racquets, it’s all there at 95% discounts from new. Get storage space and sanity, donate things to them in return.
Bought a perfectly fitting, new looking Tommy Bahama shirt at a thrift for $3.
Yep, do a lot of shopping at these thrift stores.
And estate sales and auctions!
Moi aussi, Swamp Creature.
And I was an early resister to online shopping. The pandemic was my gateway drug, and I’m never going back to my old habits.
Wondering where the data comes from? How much of these online sales are for the Chinese sites selling cheap crap. I imagine that number is quite high as I know many people who buy Chinese goods online for cheap…
1. The data comes from companies that are into ecommerce.
2. In dollar terms, compared to the nearly $300 billion in quarterly ecommerce sales, the Temu and Shein stuff is not big. It’s cheap stuff.
3. They have facilities in the US, including offices and fulfilment centers. So part of their sales would be included here.
4. Stuff that gets purchased on an overseas website and direct-shipped from overseas may not be included. On the other hand, we’ve bought sheets from an Indian manufacturer, which sells on Amazon as third-party vendor, and that would be included.
So far I have really only been burned once by “cheap crap” from Chinese outlets online — frankly useless razor blades.
In Texas cities, H‑E‑B beats Wal-Mart. In Houston H‑E‑B has a 24.9% share to Wal-Mart’s 19.7%. In San Antonio it has a 46.9% share to Wal-Mart’s 30.2%. In Austin it has a 49.1% share to Wal-Mart’s 17.8%. In Dallas-Fort Worth where H‑E‑B is only now starting to open stores, it trails Wal-Mart by a large margin 28.9% to 3.6%. I am confident they will prevail there too in several years.
I have been shopping for groceries at HEB for 30 years. Way better produce and meat quality than WM. Prices are generally in line, however.
HEB stores have generators. Very useful when the power grid collapses as it is apt to do.
Another aspect of way of putting this is the rapid disappearance of retail. E- commerce permits producer/ manufacturer direct to consumer. With this trend however go a large number of jobs. And depending on what you are buying some helpful service/ advice.
I’m now buying electric and electronic stuff as far as possible directly from the manufacturer’s or brand’s site. No way that I’m buying that stuff from a third-party vendor on Amazon. I’ve gotten screwed before. I bought shoes that way, etc. Warranty issues are a lot easier to deal with, and at least I’m sure that I’m not buying stolen stuff.
I canceled my Amazon account. I quit drinking, tooo. What the hell has gotten into me? I bought some bonds and I started reading Wolf Street. I need food and drugs over the counter type 😉. I need gas. I don’t own a home, so I don’t need Home Depot or Lowe’s. I need music equipment. I need cheap furniture – IKEA. I need AMC and GameStop. Some brick-and-mortar will survive. Let’s go, people. What are people buying these days anyway? What about saving for the future? Oh yeah, I want a cybertruck, but I hate them, so I’ll buy a Rivan.
Apparently there are tens of millions of people still pursuing the whole consumerist American Dream package. I don’t for the life of me know why, but I can mind my own business. I need them as a tax base.
Let’s keep them as tax base. Good point.
Why does one need GameStop if there is a Steam website… 😁
There will always be a place for physical ROM-based systems. I don’t know why. Maybe people like living without the internet. Steam is awesome. Switch allows you to download games too and has ROMs. Target and Walmart can be replacements for a dedicated electronic video game stores. Lots of tomfoolery with GME.
Can’t stop won’t stop Gamestop. Target and Walmart, both brick-and-mortar, do better than GME. Video game culture is synonymous with online Steam excels. No need for physical stores GME should pivot to eRetail. They have good name recognition.
It’s interesting … even in buying repair parts for our manufacturing equipment, we largely have switched to online for convenience and speed. 20 years ago, you had the company’s rep come in to figure out what you needed and get it ordered for you.
That said, to some degree one driving factor in our change to online has been the availability of fewer reps from our suppliers and oftentimes the reps are pretty new and untrained to boot.
Some companies definitely have invested to do e-commerce better than others. The ones that don’t do it well will either meet their demise or figure out a way to do a stellar job of in-person service, and then get out on the street and let customers know about it. There is a part of us that still likes in-person service but its availability has really diminished.
Are some types of purchases considered a hybrid between the two (online vs. brick-and-mortar). For example, I’m looking to buy my wife either a new or lightly used car and I’m using AutoTrader as the interface between me and the dealers. When I find a car on AutoTrader (online) that fits my budget, I will contact the dealer to see the car and then go down there to ‘kick the tires’ and give it a test drive. If I purchase it, that would be a brick-and-mortar purchase, even though I found it initially online. Correct?
But I’m doing all the selecting online — “e-window shopping” I suppose — but the purchase at the dealership.
In general, it’s where payment is tendered. Not sure how that works with buying a car tho.
For example: order & pay online, that counts as e-commerce. Order online and pay instore, that counts as a store sale.
My little e-comm operation for a small regional retailer doesn’t take payments with its store pickup system and customers pay at the store; these sales would count as insore purchases in the context of this data, even tho internally they’re written up under my dept (mail) instead of retail.
MiTurn,
Your situation is a classic brick-and-mortar sale — but instead of responding to an ad in the local paper, you saw the vehicle on their website. You’re just picking a vehicle online that you would like to buy, and then you go into the dealer to check it out (good idea with a used vehicle, especially if it’s older and out of warranty); and if you like it, you make a deal to buy this vehicle; or if you don’t like it, you might pick some other vehicle, and then do the paperwork at the dealer, and pay for it there, including having the dealer arrange the loan. Or, if you don’t like what you see, or cannot make an acceptable deal, you can walk out without car. So that’s classic old-fashioned prudent buying of a used car the brick-and-mortar way. (that’s how we did it the last two times).
Online purchase means that the deal is made on line and paid for online (including loan arranged online by the dealer). But it doesn’t matter how you get the car to your house, whether it’s delivered (Carvana delivers the vehicle to your house), or whether you pick it up at a delivery center or dealer.
Data for online sales should be broken out by fulfillment method. Online orders picked up in store or delivered from a local store are very different transactions than orders shipped from a central warehouse since they involve local brick and mortar stores.
“Online orders picked up in store or delivered from a local store are very different transactions than orders shipped from a central warehouse”
Are they? What if the item wasn’t in stock at the local store, and was shipped there from a central warehouse?
IMO it should be based on where the customer takes possession of the product – we do that for sales tax already. If the product is picked up at a store, it’s a store sale. If it’s shipped to their home, it’s e-commerce.
No they’re all the same, and should be, no matter how the stuff gets into your house: delivered to your house (you may still have to move it through the door yourself), delivered to a locker near you, delivered to a Walgreens near you (if it’s a FedEx delivery), delivered to your office so you can take it home, delivered to a store of your choice so you can pick it up on the way home. It’s up to you how you want to get the stuff into your house. How you get the stuff into your house doesn’t determine what kind of sale it is.
Lowe’s parking lot and cashiers desk was packed with retail and contractors vehicles this Monday . (Yesterday) maybe the back to school rush ? I live in East Texas smaller town with 120k people and a regional airport. Walmart at 3 pm was packed with customers and the grocery section was packed with Walmart employees handling the online orders. This walmart is also remodeling their interior to speed up cashiers (single line and an employee directing traffic ) and moving items around to assist online orders. Looks like hardware stores will be one of the late entries to large online sales but that will come as well.
In Delaware,companies like WAWA and Royal Farms have installed charging stations to compliment their fuel operations…
These ev customers will also buy goodies in their stores
But you have to wait and make pointless convos with the other “chargers”.
I’d rather be in concert traffic. 😆
Interesting. Not sure if Wolf could parse this out, but one thing that I have wondered about online sales is the rate of returned items and how this shows up, or is hidden, by the numbers. Not sure about Mrs. Wolf, but my lovely wife will purchase three sizes of each item, try them all on, and then return 75% of the items once she finds the ones that fit or look good. That is an important distinction, because sometimes things fit, but do not pass muster when it comes to looks. It’s an interesting dynamic, because these items might take a week to a month to return.
It’s not so much e-comm in general, but companies like Amazon (with their way-too-liberal return policies) that have created unstainable shopping habbits like what you’ve described.
I just dinged a customer with a 20% restock fee for returning an expensive gadget without the charger or any other accessories. He complained because he genuinely didn’t think he needed to return those items with the core product in order to get a full refund.
Define “unsustainable” in a world where the customer is always right. When I go to get a new suit, I try MANY things on and put them back on the shelf, as it were. Destroying the livelihood of a custom tailor in the name of “competitiveness” has consequences I guess. Should Amazon’s policies become “less liberal” then I suspect the tradesman to make a comeback, so that’s good news I guess. FYI, it isn’t just Amazon that has such liberal policies.
Imagine going to a store to buy something, and every item they have in stock is a customer return in less-than-new condition.
I’ve had customers who specifically asked to make sure they received a brand-new, unopened item, and then asked about the return policy on it. They don’t see the glaring contradiction with that.
With some items my company sells, the manufacturers and/or distributors refuse to take returns from us (the retailer) for any reason. Therefore, we no longer accept returns on these items once they’re opened. Even if the item is defective, they have to go thru the manufacturer’s warranty process.
“This policy ensures every customer receives a brand-new, unopened unit” is my response when I get complaints about it. What else are we to do?
And when I get questions about returns, I always include the phrase “please be courteous to the next customer who will buy this item.” Remember the stickers on VHS tapes that said “be kind, rewind”? Same principle.
Btw you’re absolutely right that it’s not just Amzn.
1. Retailers have always faced this issue. Returns are the bad-breath-the-next-morning of retailing.
2. What’s different is that instead of taking it back to the store, and then the store sends it back to some central location, or re-stocks and re-sells it, you’re now sending it directly to a central processing center where they decide what to do with it. Lots of things are resold, and you can read the complaints about that in the reviews (hiking shoes with dirt on them was the review I ran into).
3. This is quarterly data. Returns means the sale gets backed out (negative sale). If the return happens in the same quarter as the sale, it dings the current quarter; if it goes into the next quarter, it dings the next quarter.
4. There is a huge spike in sales in Q4 and a spike in returns in January (Q1). This is one reason why the not seasonally adjusted data (blue in the second chart) spike so much in Q4 then plunge in Q1. But seasonal adjustments iron this out (red line in second chart) since happens every year and is therefore largely predictable.
Returns are actually a huge ecommerce problem. A lot of companies tell you to just keep and donate or trash any damaged or incorrectly fulfilled merchandise. It saves them from paying shipping, storage, liquidation etc. It also shows how much profit they have built into their prices.
Ecommerce is a long-term structural change to a lot of industries, not just retail… there’s telemedicine, real estate, all kinds of consulting.
“What’s different is that instead of taking it back to the store, and then the store sends it back to some central location, or re-stocks and re-sells it, you’re now sending it directly to a central processing center where they decide what to do with it.”
This is only true of the largest e-comm operations. The vast majority of e-tailers don’t have this luxury.
Even when you buy on Amazon – if it doesn’t say ‘ships and sold by Amazon’ then your return still goes back to the retailer that it came from. This is true even for FBA orders that Amazon themselves ship – that exact unit goes back to the same retailer it came from.
This wouldn’t be a problem *except* Amazon allows customers to return things in conditions that retailers themselves are not allowed to send product in. We get items back from Amazon all the time and literally cannot send them back to Amazon because we’ll get an account violation on our seller account for doing so.
Customers can return things without a box, missing accessories, scuffed up, etc. but as long as the serial # of the item matches, Amazon denies our reimbursement claims. Sometimes if we’re lucky, we’ll get 10% of the value of the item back, but losing money on Amazon returns is a given.
To make things worse, many Amazon customers have figured out that they can lie about the item being defective to get a free return label. The result is that nearly everything we get back is listed as defective, yet most of it isn’t, and the customer reasons are literally useless. I don’t even bother reading them anymore, I just test the product myself.
Ultimately, these return policies mean some customers are getting free rentals, and other customers are paying for them.
Lots of retail just makes more sense as e-comm.
For example, a product that comes in 10 different colors has 10 different skus. That’s technically 10 different products you have stock at the store, and then you have to figure out which one will be popular, restock those, shuffle around slow moving stock.
Customers at store A only want the red one and that sells out, but they have plenty of them in blue. At store B customers want the blue and that color sells out there. Store A customers are told the red is instock at store B, but instead they just go home and buy it on Amazon.
Having a consolidated collection of warehouses instead of a gazillion stores solves this problem.
Recently Levi’s were on sale at Kohls. All I wanted was a blue pair of 505 blue jeans (30×32), out of stock there and a second Kohls I tried. Went home and bought online instead.
It was like going to the grocery store “What do you mean I have to order milk online”?
What about the 501, slim? Modern zippers are rubbish.
Wranglers Cowboy Cut at Tractor Supply.
Thems Good Jeans.
That’s the absolute worst. “Sorry we’re out of that one but we could order it for you?” Um, no thanks, I can do that myself homie.
It would be interesting to know how the preference for e-shopping is affected by such factors as the consumers’ distance from the nearest brick and mortar facilities and the comparative constipation of the traffic.
While there is a Wal-Mart and a Costco and home depot 15 miles from me, that’s about it for retail for 100 miles. There are small shops but they have a very limited selection and prices are 25% over the same product on Amazon. Not similar product, but same. I buy a handful of things off Amazon maybe 3 times a year. My neighbor has things delivered to her at least 3 days a week. I’ve often wondered if she has her meals delivered via Amazon. Without Amazon and cheap/free shipping, the cost of living would be even higher here and it’s already sky high with close to the highest prices for housing and energy in the country. Not as bad as Clownifornia though!
Imagine the Chaos after the next Carrington Event. Last time it happened in 1859, only the telegraph system burned up, and people went on with their lives like nothing happened.
The next time it happens the poor work-from-homer, shop-from-homer crowd will stumble out in to the sunlight and peer around at the unfamiliar world. They won’t even know which way to go to get a loaf of bread even if the digi-bux on their dead phones still worked. A sad sight it will be.
We ordered some small pieces of furniture online from the IKEA website.
Then we picked them up ourselves from an IKEA store.
I’m not sure which category that fits into …
If you purchase online, it’s ecommerce.
It doesn’t matter how the merchandise gets into your house, whether it’s delivered, or whether you pick it up at an Amazon locker, or at a store or delivery center.
What happens when the real costs of shipping 1-2 items for “free” finally show up in the form of fees?
Sure prime is what $139? But a lot of prime users get 139 packages a year. At some point ecommerce has to pass that onto the consumer. Then the retail stores will look more attractive, if they still are around at that point.
Prob have drones dropping crappy trinkets on our top of our houses soon. Like some sort of buzzy Santa in June. Bzzzzzzz
Shipping costs are part of the deal, and you’re paying for them, whether they’re “free” or listed as a separate line item. Retailers have big markups, and the markup pays for this stuff. It’s just like the costs of store clerks and cashiers, and the store rent, and all the other stuff are included in the price when you buy the stuff in a store. You don’t pay separately for them.
“Shipping costs are part of the deal, and you’re paying for them, whether they’re “free” or listed as a separate line item. Retailers have big markups, and the markup pays for this stuff.”
Wolf,
This isn’t true for a lot of consumer electronics, especially (ironically) the higher-end specialty markets.
I’m not familiar with other industries, but most of my orders go out with <20% profit. Sometimes it's under 10%. There's markup on the accessories sure, but if my customer is only ordering a "brick in a box" then I'm most likely just breaking even after shipping costs.
Also, don't forget shrink from lost shipments and fraud. The latter can be really bad – I remember one Paypal dispute that I was fighting and eventually lost, which wiped out our entire profit for the week.
I imagine volume retailers that sell smaller (lower cost of shipping) items probably have much higher markups. The new USPS ground advantage service has very reasonable prices, especially when you can pick the flat/thick envelope option.
Bigger companies also get volume kickbacks from shippers which is why smaller companies charge for shipping more often.
I don’t shop at Walmart but lately all the influencers I follow on Youtube have been pushing the fashions at Walmart. Some have designed collections for the store. One influencer says Walmart’s Scoop brand is actually designed by a high end designer. This must be part of the reason more affluent customers are shopping there.
Repurpose all the stores into show rooms for ecommerce. One item of each type to look at and try. If you want it a salesperson can help you place the order on his ipad. Very small foot prints, low rent, few employees, no shoplifting problem. Maybe for high end items that are hard to sell online.
Sears does this. There’s a tiny little store near me with only a few high sale items. I went in for a vacuum cleaner part and they ordered it for me.
“they ordered it for me.”
You could have ordered it yourself from your home and save yourself the trouble and get it delivered faster. What you’re talking about is what we used to do before the internet: Go to the store, and have them order it for us.
Then you’re missing out on one of the biggest draws of brick & mortar shopping – the instant gratification from walking out with the product.
Respectfully, I feel the opposite – most showroom-only stores could be replaced by a website.
But I’m willing to bet that online sales have a much lower economic multiplier effect than do brick-and-mortar…we can no more build a sustainable rise in living standards based on moving stuff around in small trucks than we can taking in one another’s laundry
As a side benefit of my business, I get to speak with a lot of small business owners and retailers. Most all are saying the same thing, consumers have not thrown in the towel all together, but they are seeking bargains and spending less on regular priced items.