This economy is horrible, and I think it will get much worse next year.
While I haven’t seen revisions of the rosy 10%+ growth predictions for online sales from a number of research firms, Piper Jaffray’s October Research report on ‘The Turbulent teen years of eCommerce’ explains the harsh reality of the current economic environment. While Piper Jaffray expects “online sales to continue to take consumer wallet share from bricks and mortar stores, growing 5%-6% faster than total retail sales in the near term,” that doesn’t mean much when total retail sales are slumping dramatically:
According to the commerce department (via Market Watch), online sales, excluding auto sales, dropped 2.2%. “Sales of durable goods remained weak. Sales at furniture stores dropped 2.8%, sales at electronics and appliance stores fell 2.3%, and sales at hardware stores fell 0.4%. Sales at the mall were horrible. Department store sales dropped 1.3%, clothing store sales fell 1.4%, and sporting and hobby stores sales fell 1.6%.”
So back to Piper Jaffray’s report. According to Gene Munster’s team, eCommerce sales “will decrease 2% year over year in the fourth quarter of 2008, and will be flat in 2009 before turning the corner and growing 5% in 2010 when the economy recovers.” Take that in for a second. We’re not talking about the 17-21% growth (increase) we saw from the 4th quarter of 2006 to the fourth quarter of 2007, but a drop. Ok, sometimes I spell out the obvious over and over again, but I want to be extremely clear here.
Forget about Wall Street for a second (although not entirely). This economy is driven by consumers. Consumers who are over their heads in debt, with rising credit card rates (Citigroup will not be the last to raise rates), who don’t have jobs (this number will rise), whose houses are underwater.
Or just put it this way, no job –> no money –> no sales (online or offline) –> no good for businesses –> which leads to more businesses going under –> more job cuts.
Techcrunch might have the layoff tracker, but I think we need the retail distress tracker. Circuit City is the first victim…and the holiday season hasn’t even started. Who’s next?
The real question is what can online stores do in order to survive this crisis?
People will keep buying things even if they have less money, but they might look harder for discounts or buy cheaper items. IMO the online stores that survive will be those that pay attention to the changing needs of the consumers and adapt accordingly.
Very good informative article.
Online stores can and will survive – and grow – if ran correctly.
As Bob stated:
“IMO the online stores that survive will be those that pay attention to the changing needs of the consumers and adapt accordingly.”
I couldn’t agree more.
I think that survival is going to be the name of the game for most companies until the economy get thru this massive downturn.
Unfortunately, the US economy is not going to recover from something this severe unless citizens are allowed to keep more of their own earnings, so they will be able to spend more.
And the basic truth is that US Citizens can no longer afford the military spending and foreign aid policies of our Federal Government.
Since, I don’t see citizens rioting about taxes yet, they will be spending less and less and more companies will be going out of business causing less money to be circulated.
[...] Brian Smith, on November 26th, 2009 Last November, I talked about doom and gloom and retail being in big [...]