SALT LAKE CITY — It’s been a long time coming, but 2019 will go down as the coronation year for e-commerce. That means the world of online shopping will finally topple in-store sales at brick-and-mortar stores.
And this year’s holiday sales — in spite of being besieged by international trade issues and the shortest possible shopping season by calendar alignment — are expected to be up over last year and help underscore the new kings of retail.
While the pinnacle moment already happened — U.S. Department of Commerce data for February indicates “nonstore” retailers of general merchandise edged out its collective brick-and-mortar competitors by a fraction — a new report from banking giant Wells Fargo outlines expectations that online shopping between Thanksgiving and Christmas this year will notably outpace spending in regular retail stores for the first time.
Wells Fargo senior economist Tim Quinlan said the emergence of e-commerce as the officially dominant U.S. retail force should not come as shocking news.
“I don’t think there will be anyone caught by surprise in that regard,” Quinlan said. “It’s a category that’s seen steady and sizeable year-over-year growth, essentially since inception.”
The de facto advent of e-commerce dates back to 1991 when commercial use of the internet got an official signoff, but it wasn’t until a few years later the the originators of online shopping, Amazon and eBay, opened their virtual doors for business.
While the online shopping world of 1995 looks little like the 2019 version, the explosive growth of the sector is unprecedented. Right now, an estimated 1.3 million North American e-commerce companies, including so-called marketplace resellers, are plying goods in the digital shopping ether and in 2018 brought in over $500 billion in revenue.
Analytics website Statista estimates that number will balloon to over $740 billion by 2023.
While convenience, selection and pricing have all combined to help drive the growth, Quinlan noted some less obvious, but significant, economic factors are also helping drive traffic to web-based stores.
“If you go back to as recent as 2003, student debt was the smallest category of household debt,” Quinlan said. “Today, student debt is the second largest on the list, second only to mortgages.
“A lot of households shouldering this debt are looking to get rock-bottom prices and moving online to find them.”
Quinlan and a group of Wells Fargo economists and fiscal analysts assembled data supporting trend predictions in the company’s 2019 Holiday Sales Outlook report. The group’s data also suggests overall holiday shopping will be up some 5% over last year, with that uptick coming in spite of the number of shopping days between Thanksgiving and Christmas being the fewest possible — 26 — based on where the holidays fall on the calendar. The 2018 shopping season was a full six days longer.
A report prepared by professional services and accounting giant PricewaterhouseCoopers also predicted e-commerce taking over the lion’s share of 2019 holiday shopping dollars, estimating that online will outpace in-person general merchandise shopping sales 54%-46%.
Perhaps not surprisingly, data in the Pricewaterhouse report also reflects Amazon will dominate online shopping volumes both as a purveyor and as a tool for most consumers to find gift inspiration, check prices and find product information.
The report also notes generational divides in how shoppers will access holiday shopping sites.
While shoppers from the Greatest Generation (born from 1928-1945) and baby boomers (born from 1946-1964) along with Gen X (born from 1965-1980) and Gen Z (born after 1997) will do most of their holiday shopping from personal computers, millennials (born 1981-1996) will make more purchases via their smartphones than other devices.
Regardless of age, Pricewaterhouse believes shoppers will spend more this year than last year, with the average holiday spend coming in at $1,284 per person, up from $1,250 in 2018. Those on the buddy list are most likely to get short shrift as consumers’ holiday dollars are dispensed, with $740 going to family gifts, $334 for gifts for the purchaser and $123 on gifts for friends.
Operators of brick-and-mortar businesses have updated their strategies in an effort to navigate, and compete, in a world where virtual shopping has become the go-to choice for most consumers.
Kristen Lavelett, executive director of Local First Utah, said local small businesses are embracing a model that adopts reliance on e-commerce while also maintaining an in-person, physical retail space.
“I’ve seen data that suggests local businesses are getting about 30% of their revenues through in-store sales and 70% from online businesses,” Lavelett said. “The rumors over the years about the death of small retailers have still not come to fruition because our local, boutique businesses are finding their niche and in a lot of ways, really, are thriving.”
Tammy Taylor, owner of the Sugar House cosmetics and self-care store Got Beauty, said she’s embraced creative strategies to go head-to-head with the online e-commerce giants.
“At Got Beauty we have consistently implemented strategies to combat potential losses from big box poaching or competing online stores,” Taylor said. “Because online selection in any industry is virtually endless, we must be very creative in order to keep our clients.”
Taylor said creating a customer experience helps her differentiate her business from online shopping that she says lacks personal service and human interaction elements. That happens through special in-store events and engaging with other local businesses and women’s groups, as well as offering perks for her online clients like same-day shipping for locals.
“While most customers prefer to shop local, they ultimately opt for convenience, so we create a space and experience that outweighs that,” Taylor said. “Ultimately we create one-of-a-kind experiences, relationships with stylists, etc. that cannot be emulated online.
“We educate, we price match, and we have fun.”
Lavelett said she believes younger local shoppers are balancing their online shopping habits with thoughtful spending at local businesses.
“What you see from the millennial and Gen Z shoppers is, they look at how they spend their money in moral terms and asking, ‘Am I doing the most good with what I have available’ and buying from locally owned businesses,” Lavelett said. “They can see that, when they choose to spend their money, they’re not just buying something from a local store, they’re adding to the community they live in.”
That trend is reflected in some of the data Pricewaterhouse gathered for its holiday analysis. The report found that 55% of young millennials (ages 24-27) surveyed saw shopping as an “experience” event and 60% of the same group said they would go out of their way for a “superior shopping experience”. And 51% said they like shopping in areas where they can combine shopping with other experiences, like dining, movies and other entertainment.
Evolving consumer behavior patterns are also playing a role in how individuals divide their shopping between online options and in-store experiences.
University of Utah David Eccles School of Business professor Arul Mishra said the online shopping experience itself is contributing to changes in consumer behavior.
“One interesting trend that we are observing because of online purchases and recommendation systems is that people are becoming aware of many different products that they may not have been aware of if they were shopping in-store,” Mishra said in an email. “Hence, buying accessories and related products have become more common.”
Mishra noted the customer reviews are also driving the online shopping decision-making process.
“Another way online shopping has affected consumer behavior is through the presence of customer reviews,” Mishra said. “Now, whenever people buy, they do not just obtain product information from the brand but also from other customers, which has helped make their purchases more informed.”
While international trade issues continue to make headlines, and a new round of U.S. tariffs targeting a selection of consumer goods manufactured in China went into effect on Sept. 1, the Wells Fargo report noted most stores had likely completed orders for holiday merchandise before that date and expects impacts during the end of year shopping season to likely be minimal.
The report also noted that goods from China represent a relatively small share of overall retail merchandise.
“Imports are a large source of retailer’s merchandise, but they don’t all come from China,” the report says. “Imports from China in the categories of goods exposed to tariffs at the start of September only represent about 2% of our total holiday retail sales measure.”