Online Sales Could Stomp on Comps

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Same-store sales have traditionally been the must-have accessory in measuring retail sales effectiveness. But a new generation of consumers may be taking shopping online, and if so, we'll have to look at retail sales in a new light.

Last week, fellow Fools Alyce Lomax and Todd Wenning did a mall run and found a quiet scene with a fairly empty parking lot and empty-handed shoppers. The kids just aren't hitting the malls right now. May's same-store-sales numbers bear that out: Gap (NYSE: GPS) suffered a 14% decline, American Eagle Outfitters (NYSE: AEO) dropped 9%, and Limited Brands (NYSE: LTD) fell 6%.

Unlike the Chinese, who view mall shopping as a leisure activity, time-strapped and gas-price-distressed Americans are visiting the mall less often, according to the International Council of Shopping Centers. The bricks-and-mortar trade group found that the "average" American shopper surveyed made an average of 35 shopping trips in 2006, versus 37 trips in 2005. I emphasize "average" because we all know there's a dedicated group of shoppers who can't stay away from the mall, and others who wouldn't go near it if they gave the Mrs. Fields' cookies away for free.

But even these loyal mall shoppers are spending less time at the mall (77.2 minutes per visit, but who's counting?). They are spending more money per trip, with the average splurge coming in at just less than $100, up almost 20% from $83.40 in 2003 (no wonder we're all in debt!), but that makes sense: With gas prices soaring and time pressures always looming, consumers are feeling the push to become more efficient shoppers. So people are simply buying more stuff in fewer trips.

No wonder online shopping is becoming so attractive. The 24/7 ability to shop and the easy access to what you want -- no crowds to fight, and no lines to wait in -- appeal to even the busiest shopper. A study completed by shop.org, an online-retail-industry trade group, and Forrester Research projects a 17% increase in online sales this year, with apparel topping the list at $26.6 billion in revenue. The study segmented online consumers into two groups: casual "price" shoppers and higher-end convenience shoppers -- i.e., those who avoid the mall at all costs.

This jump in Web-based retail shopping isn't anything new: Online clothing sales outpaced computer sales for the first time in 2006. However, even with this increase, Internet-based purchases amounted to only 8% of all apparel sales.

So, unless you're a Web-based retailer such as Amazon.com (Nasdaq: AMZN), whose very lifeblood is online sales, Internet-driven revenue is still only a small portion of many retailers' business. Still, bricks-and-mortar-based retailers are looking to boost their Web sales. Gap, for one, is expanding its online presence with an integrated shopping experience for its Gap, Banana Republic, Old Navy, and Piperlime brands. Stressed Sears Holdings (Nasdaq: SHLD) has found a bright point in its financials with a 12% increase in Lands' End direct-to-consumer sales, which includes catalog sales, too.

Williams-Sonoma (NYSE: WSM) is one company struggling to mix its mall-based retail sales with online success. Corporate same-store sales dropped by 9%, while Web-based sales increased by 8.7% for the quarter, to bring online revenue up to 32.2% of total sales. If same-store sales continue to drop, you have to wonder whether Williams-Sonoma will consider closing stores and moving toward a Web-based sales model.

Malls don't have to worry about online sales overtaking their bricks-and-mortar business anytime soon. However, Web-based business is getting large enough that Moody's (NYSE: MCO) plans to consider online sales when conducting its credit analysis. The days of analyzing just same-store sales when considering retail success may be as out of date as those concerts that Tiffany held in malls back in the 1980s.

For related Foolishness:

• The Mall Is a Ghost Town
• This Mall Is Dead, Dude
• China Goes Power Shopping