E-commerce retail sales totaled $453.5 billion in 2017 and have been rising on average 15% a year since 2010, signaling a digital revolution to a traditionally brick-and-mortar sector. Though widespread, e-commerce’s impact has varied greatly by retail and product category. Understanding these variations is key to predicting how the industry will evolve in both the short and medium terms, and determining how retailers, landlords and investors shape their growth strategies.
E-commerce sales by product category
One approach to understanding e-commerce variations is analyzing the distribution of online sales by product category.
Figure 1: Select E-Commerce Sales by Product Category
Source: Forrester Research, 2018.
Of the $453.5 billion in online purchases last year, the two largest categories were clothing ($66.5 billion in online sales and 14% of overall e-commerce) and consumer electronics ($56.3 billion in online sales and 12% of overall e-commerce). Both categories are expected to rise between 12% and 14% by 2022. The fastest-growing categories, however, are home improvement and small appliances (19% and 17% forecast growth by 2022, respectively).
E-commerce share by product category
Another way to analyze e-commerce variations is what share of each category’s sales occur through the online channel (often referred to as e-commerce share). This allows us to understand the level of online penetration in each category.
Figure 2: E-Commerce Share by Product Category
Source: Forrester Research, 2018.
In 2017, the categories with the highest rates of online penetration were computers (78%), consumer books (66%) and small appliances (49%). Clothing, which had accounted for the largest share of e-commerce retail sales (Figure 1), has a lower-than-average e-commerce penetration rate (22%). The categories with the lowest e-commerce shares included food and drink (3%), home improvement (3%), over-the-counter drugs (6%) and furniture (8%). By 2022, penetration is forecast to rise most in the small appliances, consumer electronics and sports equipment categories.
Real estate implications
E-commerce growth and penetration rates will have a significant impact on retail real estate demand and growth strategies over the next five years.
Retailers whose product mix is due for high e-commerce growth and penetration rates must proactively adapt omnichannel strategies that facilitate seamless shopping experiences across digital and physical channels. In product areas where consumers are shifting transactions online, retailers must engage shoppers through digital channels and focus on complementary in-store offerings. Some retailers with high e-commerce exposure, such as clothing, may consider integrating more experiential elements into the store, such as food and beverage or services.
Landlords must analyze their existing merchandise mix and consider repositioning those that are especially vulnerable to online penetration. Shopping malls particularly face high exposure to soft goods categories with high e-commerce rates and must shift toward lower-penetration categories like food & beverage, beauty and services.
In valuing retail assets for purchase or sale, investors must closely assess the current merchandise mix to forecast performance and returns. Assets with high e-commerce exposure will likely require merchandise re-positioning, so evaluating lease terms and clauses will be critical.
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