Here we go again…sigh. This latest CNBC article has me feeling a bit like Al Pacino in The Godfather Part III (“Just when I thought I was out, they pull me back in!”). It’s been a few weeks since an article has proclaimed the death of the mall, so I guess it was time for some inanity to rear its head once again.
Look, I’ve long taken issue with some of the ways the topic has been covered and I think it’s clear which side of the fence I am on when it comes to the future viability of physical retail, but I’m also not the Pollyanna you might think. There have certainly been challenges for the sector and online retail has made its impact felt to be sure, but it’s just not the death-blow that some people want to make it out to be.
So, I feel compelled to point out some of the obvious errors in this latest CNBC piece. To its credit, CNBC corrected the mistakes about a day and a half later, but the issue is that the damage was already done. It’s not as if people went back and read the updated version, which is why I want to point out the issues with the piece as it originally ran, as well as some issues that exist in the current iteration.
Let’s start with the headline: “Online shopping officially overtakes brick-and-mortar retail for the first time ever.” Woah! That’s big news! Because that means that online retailing somehow closed the roughly 90% gap in just one month. Spoiler alert: This didn’t happen.
CNBC's clarification: It changed the headline to “Online shopping overtakes a major part of retail for the first time ever.”
Clarification to the clarification: warmer, but still off. Not sure I’d call it “major” as it’s a single part of brick and mortar retail, but ok.
The second bullet in the subhead was highly problematic: “The total market share of sales done with “non-store” retailers, or online, was higher than general brick-and-mortar sales in February.” Um, what? This is so far off base it’s almost comical…almost. So, you must read down into the article itself to unearth where this erroneous statement comes from (it’s incorrectly stated as “general sales” in the opening paragraph as well), where we finally arrive at this: “Non-store retail sales last month accounted for 11.813 percent of the total, compared with 11.807 percent for general merchandise.” Now, of course, to someone who has never looked at the Commerce Department retail sales reports, this may seem like a fair comparison—but to anyone that has, it’s clearly not.
CNBC's clarification: The second subhead now reads, “The total market share of sales done with ‘non-store’ retailers, or online, was higher than general merchandise, including department stores sales, in February.” They have also made the first reference in the opening paragraph “general merchandise” instead of “general sales.” They also added more caveats as to what is actually in the general merchandise stores line item noting that it does not include, among many other things, “clothing and accessories stores.”
Clarification to the clarification: These are all very necessary improvements. The general merchandise stores line item is but one part of the report that constitutes physical stores. If you wanted to take a narrow approach of online vs. physical stores you could use GAFO sales. Only looking at GAFO (problematic in its own right, but more on that in a bit), non-store retailers would be still significantly lagging to GAFO’s 21.6% share (Using Seasonally Adjusted data, as that what is used in the story). So why Bespoke Investment Group chose to call out online beating this narrow “general merchandise” category as being in some way significant is beyond me. For reference, apparel is 4.5% of total sales, health and personal care 5.8%, food and beverage stores 12.3%, and restaurants 11.9%, all of which are integral parts of brick and mortar retail (all numbers Seasonally Adjusted). So, to single out any one aspect of brick and mortar just doesn’t tell the whole story.
Furthermore, the article still states that “The online sector, referred to as “clicks,” has been slowly eating up market share in the past two decades. Its total rose from below 5 percent in the late 1990s to about 12 percent in 2019, according to the Commerce Department.” Yes, it’s growing in terms of share, but it’s not 12%. Giving the benefit of the doubt it's 11.2% if you look at Non-Seasonally Adjusted figures. That bit of egregious rounding aside, the entire article uses Seasonally Adjusted numbers before that, which would put the share at 9.9%.
However, the bigger point to make here is the rate of growth itself. You can see in the chart below that e-commerce (or really, “non-store” sales) is growing at a consistent rate (the grey line). However, the red line shows the percent growth from the prior year, which is clearly trending in the opposite direction. So, at some point soon, it will likely reach an inflection point and level-off. At what percent share that ends up is anybody’s guess, but what’s clear is that it’s not going to end up as the inverse (where online is 90% of total sales).
So, yes, kudos to CNBC for correcting the glaring mistakes in the article. But even so, there are some issues here, most noticeably, why is this even news? We all know that online is growing, but how is it surpassing one line item of the commerce department report noteworthy?
Add to that, it isn’t actually “online shopping” as the headline, and many people, like to cite. The “non-store” retailers NAICS code in the Commerce Department report is a bit broader than that. For one, it includes nonrefundable shipping and handling.
Again, there is a more important takeaway here—the concept of convergence. Online sales from brick-and-mortar retailers (e.g. Target) were more than half that of pure-play e-commerce retailers in 2017 (pure-play: $261.9 billion vs. brick and mortar: $179.9 billion). Meaning, we are truly seeing a blending of the channels and a realization from retailers that to properly compete they need to have a presence everywhere, online and off.
So, why are we still having the same discussion around online vs. brick and mortar? It is clear that at this point it should be a significantly more evolved conversation. I for one yearn for the day that we can just talk about retailing.
