Gerry Harvey’s American nightmare


Retailers shift into overdrive during the holiday season. They hire casual workers by the thousands, expand business hours, and restock their shelves faster than at any other time of the year.

Of course, that’s as long as shoppers keep walking in the door. In what should be chilling news for the established bricks and mortar retailers in Australia, it’s the online retail space notching up all of the big wins in the US this December.

Sure, we knew that already, but the sheer scale and breadth of the change should make for uncomfortable reading for Harvey Norman’s (ASX: HVN) Gerry Harvey and the bosses of our department and electronics stores, David Jones (ASX: DJS), Myer (ASX: MYR) and JB Hi-Fi (ASX: JBH).

The news isn’t all bad – overall, US shopping is trending in the right direction. But it’s not great for the incumbents with physical stores:

1. Package delivery expert FedEx planned to move 19 million packages through its network on one day — Monday, December 10. The company says that will make it the busiest day in its history, with deliveries to be processed at an estimated rate of 200 per second. FedEx expects to ship a record 280 million packages in total in the Christmas period.

2. The world’s largest retailer, Wal-Mart, stores saw over 20 million visitors on Thanksgiving Day. And on ‘Black Friday’ – often the biggest retail sales day in the US – the company logged 10 million register transactions in just four hours. At peak shopping times, sales were rung in at a rate of 5,000 per second!

3. Online spending topped US$1 billion for the first time on Black Friday, according to comScore. And that was just the beginning. Daily Internet sales figures have eclipsed that milestone twice since, led by the US$1.5 billion haul on Cyber Monday.

4. Amazon.com’s  sales are expected to hit US$22 billion this holiday quarter. That figure is more than 40% of all of last year’s e-commerce spending over the same period. It would also represent more money than was spent on all online shopping — across all merchants — for the first 32 days of this year’s holiday season.

5. Credit cards are getting a workout, too. Visa processed US$5 billion over the four-day period from Black Friday through Cyber Monday. That’s an increase of 20% from last year’s figure. Cyber Monday alone accounted for US$2 billion of Visa’s purchase volume. While total spending leapt, Visa saw a small decline in average spending, indicating that shoppers are expanding the universe of products that they’re shopping for online.

Good news

There are some really bright spots here. Despite the US’ somewhat fading star as the world’s largest economy, its consumers really do set the tone for global economic activity. After years of cautious consumption, a return to the stores is exactly the economic tonic required to help grease the wheels of capitalism – leading to more jobs and therefore more spending. It’s a virtuous circle.

That sales were up in places like Wal-Mart, and department store Macy’s, also helps counter any concern that the jump in online sales was merely a shift from physical retail.

However, the enormous surge in online sales is taking almost all of the oxygen away from bricks and mortar stores. With ever-increasing rents and staff costs – and with deflationary pressures on items like televisions and computers – the canary is singing loudly in the coalmine.

Foolish takeaway

Online is not the only future for retailers with physical stores.For the foreseeable future, people will still want to see and touch some products before they buy them.

But the US lessons are clear. The tidal wave is coming. The anecdotal or predicted impacts have been talked about for years. The data now shows the size and speed of this change – and that it is upon us.

Retailers have a little time to respond – but respond they must. Inaction may yet see them swept away.

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Motley Fool analyst Scott Phillips owns shares in Harvey Norman, David Jones, Wal-Mart and Amazon.com. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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