Brick and Mortar's Comeback Story?

The death of the retail store seems to be overexaggerated. Third-quarter retail sales from the Census Bureau, released last week, suggest strength in in-person shopping in the quarter and a slight slide in e-commerce market share.

In an analysis of the data, Jason Miller, associate professor at Michigan State University's Eli Broad College of Business, dug into the data and concluded while pure-play e-commerce retailers are thriving, for those retailers with physical stores, their e-commerce gains slowed compared to in-store shopping in the quarter.

"Turning to pure-play e-commerce retailers, the Census Bureau's data tell a different story," Miller wrote. "While Q3 2021 sales did decline $3.1 billion (2.9%) from Q2 2021, sales were up $10.5 billion (10%) from Q3 2020. While this represents a strong yearly gain, it is far less than the 27.3% yearly gain observed in Q3 2020 versus Q3 2019. Given the sharp increase in total [brick-and-mortar] retail sales, total e-commerce sales for the entire retail trade excluding motor vehicles and parts dealers fell in Q3 2021 to 14.9%, down 1.1 percentage points from the 16% figure in Q3 2020."

The Census Bureau reported online sales totaled $204.64 billion in the quarter, up 6.8% from the year-ago period. But brick-and-mortar (B&M) retail sales rose 13.2% in the quarter compared to Q2 2021, even as the delta variant of COVID-19 started spreading rapidly, driving up case rates across the country.

"As a result, e-commerce as a percentage of B&M retail excluding motor vehicle and part dealer sales fell from 7.6% in Q3 2020 to 6.7% in Q3 2021," Miller said.

For transportation providers, the data offers a ray of hope that more traditional retail freight volumes – direct to stores – will remain strong.

E-commerce sales and total retail sales over the past three years (excluding motor vehicles and parts dealers). (Chart: Jason Miller/ Michigan State University's Eli Broad College of Business)

"Critically, this suggests that future growth in e-commerce shipment volumes, at least over the coming months, will come predominantly from pure-play e-commerce retailers," Miller wrote.

More importantly, Miller surmises that 2022 retail sales, once inflation is factored in, may be flat with 2021's numbers and freight volumes may actually decline.

"Once retail trade excluding motor vehicle and parts sales are adjusted for inflation using a price index from the Bureau of Economic Analysis, Q3 2021 sales show a 1.4% decline from Q2 2021 levels," he said. "Typically, we would expect Q3 sales to be flat relative to Q2 sales – 2020's 6.6% gain being an outlier."

E-commerce retail sales over the past three years as a percentage of total brick-mortar retail sales (excluding motor vehicles and parts dealers). (Chart: Jason Miller/ Michigan State University's Eli Broad College of Business)

Earnings reports from some major retailers suggest the data is correct. Home Depot reported a 10% rise in store sales in Q3 while Macy's reported a 37.2% increase in Q3 comparable store sales while noting a 5-percentage-point decline in digital share to 33%.

Click for more articles by Brian Straight.

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