Ecommerce. Retail. Channel harmonization

From their last report, Moody’s Investors Service is predicting slower growth for USA retailers, as price wars and big investments weigh on profits.
The reports was released Octber 31st 2019 and is avaiable for subscribers here: Retail — US: Going stable as competition, pricing pressures clip momentum. Performance across the industry is experiencing rising pressures due to intense competition in the fight for market share, (1).

Below some notes taken from varius sources.
Revenues and profits
In that report there are 2 main figures Moody’s takes into account:
- the rating agency cuts the operating profit growth forecast for the 2019 to 2%-3% from an initial estimate of 5%-6%. In the 2018, USA retailers saw a bold 4.9% growth rate.
- for the sales, Moody’s expects a rise from 3.5% to 4.5%, whilst the prior estimate was 4.5%-5.5% for the year.

There are, behind, 2 main causes that hurt the industry’s performance and are the root causes of the cut of the outlook from positive to stable:
- intense competition
- cost of integrating e-commerce with off lines stores.
Moody’s underlines in the report that USA retailers are investing in e-commerce capabilities and engaging in pricing wars, whilst battling for market share. The report looks at the steady underperfomances of apparel, footwear, specialty retailers and department stores.


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This is very challenging for small companies: for small organizations, the competitve landscape is tricky, as they face a lot more competition. And this is als reflected in the presence of their stores in the various states. Not only, also the assortment could be a point of impact.
We noticed trade tensions between USA and China:

it’s a concern for retailers (apparel, footwear, electronics, toys and tools) that source products from China. The new tariffs imposed by the USA administration took effect in September and a new round is expected in December. These measures could hit smaller companies hard for their larger assortment of Chinese products, (2, 3).
Some figures about ecommerce vs retail sales
Will Moody’s be right? Or wrong? The report says that 2 things:
online retail sales are expected to make up 20% of total retail sales (for the next 4–5 years)
and also
compared with the roughly 15% it makes today.
Well, the USA ecommerce is very far from 20%, as its peak was reached in Q2 2019 with a 10.7% penetration on total retail USA sales. Indeed, from the we all see that Q2 2019 USA ecommerce recorded $146bn in sales whilst the total retail USA sales was $1,362bn.
On top, the highest value for ecommerce has never been so high and below the trend of the past 5 quarters (4, 5):
- Q2 2018 9.8%
- Q3 2018 10.0%
- Q4 2018 10.1%
- Q1 2019 10.5%
- Q2 2019 10.7%
Changing shopping experiences for changing shoppers

The experiences in the stores, off and on line, are in any case changing: many retailers are investing into e-commerce platforms and adjusting their brick-and-mortar stores to a more connected and more demanding shopper. The shoppers, so all of us, are changing and leading. There are many cases where big and medium size stores are reduced in space if the shopping surface is too big and sales per square feet isn’t so good: if there is no need of a store that large, they can use part of it as a warehouse (to favour ecommerce, omnichannel, proximity delivery etc) instead of closing it.
And this is way better than closing stores randomly: this can really hurt the company as a retailer, with less presence and less services. E-commerce and physical stores are integrating towards one channel, but they need each other: b.o.p.i.s. (you can buy online pick up in store) or buy online and exchange or return in the store. All this, btw, let the consumers to skip the queue at the counters of some large or small stores.
What big guys are doing
The big guys, like Walmart, Target and Best Buy are well leading the integration of e-commerce and brick-and-mortar.
Walmart, just to note, is the 1st group in the world by largest revenues (6), with more than 2.2 million employees, and more than $514bn in revenues.
These, and other, large companies offer multiple ways customers can make purchases: on-line ordering, picking up in the store or receiving at home, in other stores, in 3rd party pick up points or direct deliveries from warehouses.
Small store closing, large companies hiring
As seen before, some small chains are closing ther stores. Some big and medium organization are doing, unfortunately, the same. Despite a bold demand of workers.
But, there is a significant body of evidence showing that the USA economy is strong: it has added millions of jobs, and even long-neglected sectors like manufacturing are having a resurgence, (7).

In the USA, the unemployment rate continues to fall, (8):
- the cost of labor continues to rise,
- strong job growth means increase in consumer confidence.
A higher consumer confidence does nothing else than helping the retailers and the e-tailers.
The largest American ecommerce, is hiring a lot of people as well.
Amazon, that keeps growing in a steady manner, has accelerated the competition, imposing more pressure from their logistic and delivery mechanisms: the fight is now more focussed on services, super fast shipping, because consumers want their products and they want them now. Amazon has raisen the bar.
I put, almost 3 years ago, the accent on the ecommerce transformation in terms of services and consequently in terms of employements. I don’t know if I was right or wrong, but I know that at that time I got the point about logistics. Ecommerce models based on digital marketing are easy to build and run: much more difficult is a very fast shipping and a seamless store integration, (9).
Let’s see
I expressed my doubts about the trends studied by Moody’s. What I see is that Ecommerce in the USA is very far from 15% they think for the past (not even 11%, btw), and 20% is a lot. I also feed my doubts with the cut of revenues.
No issue, will see. How? Read below :-)

In a few weeks, the Department of Commerce will announce the estimate of U.S. Retail and E-commerce sales for the second third of 2019.
These reports are issued on regular basis, are public, all the data are downloadable to create graphics, charts and reviews, (10). So, let’s see :-)
Sources
- https://www.moodys.com/
- https://www.cnbc.com/2019/09/01/trumps-15percent-tariffs-on-112-billion-in-chinese-goods-take-effect.html
- https://www.cnbc.com/2019/10/14/mnuchin-says-he-expects-tariffs-to-go-up-in-december-if-there-is-no-china-deal-in-place.html
- https://medium.com/gobeyond-ai/ecommerce-is-growing-and-crowning-a-new-global-leader-804027ce0884
- https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf
- https://en.wikipedia.org/wiki/List_of_largest_companies_by_revenue
- https://www.commerce.gov/news/op-eds/2019/08/op-ed-commerce-secretary-wilbur-l-ross-american-workers-are-winning
- https://www.cnbc.com/2019/11/01/jobs-report-october-2019.html
- https://medium.com/@girardg/future-jobs-for-an-e-commerce-still-evolving-1fde93bbd330
- https://www.commerce.gov/




