More Online Sales Are Touching Physical Stores

In the growth of online shopping, there’s often been an assumption that e-tail and retail were two different spheres — a zero-sum game. But patterns of consumers, and the decisions companies make, are suggesting otherwise.

Data from Adobe shows continued significant growth in e-commerce spending, with the first four months of 2024 showing a 7% increase — $331.6 billion — over the same period in 2023. “Consumers have been trading down to cheaper goods, across major e-commerce categories including personal care, electronics, apparel, furniture and groceries,” the company wrote, with inflation sending buyers in search of ways to save money. And buy-now-pay-later plans are “expected to drive over $81 billion in online spend in 2024, setting a new record as shoppers embrace more flexible ways to manage their budgets.”

E-commerce as a percentage of all retail is down from the pandemic high of 16.5% in the second quarter of 2020. However, it was still 15.6% in the last quarter of 2023. It’s not going away and continues to grow, although more slowly.

And it’s more wrapped up with traditional brick-and-mortar retail than ever before. Overall, nearly 42% of e-commerce orders last year involved stores, up from about 27% in 2015, according to research firm GlobalData.

“There was a narrative that as online grew, stores would become less relevant. But it hasn’t worked out that way,” Neil Saunders, managing director at GlobalData, told the Wall Street Journal. “In many ways, the store is still the heart or hub of retail.”

To understand the dynamic, it’s helpful to mention a concept called omnichannel. A channel is a way of marketing and selling product. That can include e-commerce, company stores, third-party retailers and wholesalers, catalogs, mail order, pop-up venues, and anything other way a company can use.

Companies are starting to heavily integrate brick-and-mortar and e-commerce to create multiple advantages. Customers can enter a traditional store to see, feel, and evaluate products. This can be particularly important when consumers are looking to evaluate different brands and decide between them. Some types of products lend themselves more to physical display, like apparel to check for size, color, and style, or foods or makeup that can be sampled.

“It’s an important part of the community,” Emily Arft, an analyst at Green Street covering the mall sector, told GlobeSt.com last year. “You get a lot of essential items from these retail properties. There’s daily activation at these properties and they’re essential to daily retail habits. Core retail is important in that sense. That’s one reason Walmart has been able to compete with Amazon, because they have the physical footage.”

You can think of effectively placed stores as advertising that pays its own way with profits. Like a giant billboard that people see as they go by. “For a store, it’s front-of-mind for somebody walking past it. they’re paying rent for that space, but not advertising for it,” Stephanie Cegielski, vice president of research at the International Council of Shopping Centers (ICSC), told GlobeSt.com at the time. “We studied it in 2018 and will study it again, but we found that if a store opened in a market, their online sales in that market increased 37%. We found that if a store closes in that market, online sales decrease 33% in that market. It’s out of sight, out of mind.”

Plus, physical locations can form part of logistics chains, offering inventory space for last-mile deliveries and drop-off points for returns. According to the Journal, Kohl’s fulfills more than a third of e-commerce orders through its stores. Walmart serves half its online orders from physical locations, and Target, nearly all.