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No, Online Sales Haven't Surpassed Sales in Physical Stores

By Daniel B. Kline – Updated Apr 4, 2019 at 4:44PM

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E-commerce continues to grow at an impressive pace, but it still accounts for a relatively small share of U.S. retail sales.

If you exclude dinner and lunch, breakfast stands as the most popular meal for people to eat a cheeseburger. It's also fair and accurate to call Solo: A Star Wars story the second-most successful stand-alone Star Wars film.

Data can say a lot of different things depending on how you shade it. That's reason enough to take some headlines with a grain of salt, and examine their assertions with a skeptical eye.

Case in point: When the U.S. Census Bureau released its February retail and food services report this week, some media outlets reported the obvious takeaway -- that overall sales had dropped by 0.2%. But one media outlet pushed the idea that "Online shopping officially overtakes brick-and-mortar retail for the first time ever."

Technically, that claim is not entirely untrue, but to make it requires that you focus in on a narrow and selective slice of the data. Unfortunately, that's something that happens quite often in reporting on the much-hyped retail apocalypse.

Retail stores are seen without people.

Brick-and-mortar chains have shrunk but they still account for most sales. Image source: Getty Images.

What's the real truth?

No matter how you slice the data, digital sales have been growing. They climbed from nothing to around 5% in the late 1990s, and kept rising to roughly 12% of total sales in February 2019. That's no mean feat -- but in what sense is 12% of sales bigger than the remaining 88%?

Here's the reality: Online sales across all categories accounted for 11.813% of retail spending in February, while sales from "general merchandise retailers" via their brick-and-mortar stores accounted for 11.807%. That's a race between the entire e-commerce universe and one narrow category of "general merchandise" -- to classify it as a win for digital requires us to exclude the large majority of consumers' physical-store shopping across a host of categories.

Moreover, those figures don't really reflect the current omnichannel state of the retail world. If a consumer visits a store to research a purchase, tests the item there, and then places their order via the company's website, is that really a digital sale? The same argument works in the opposite direction -- how should you classify a sale when someone buys an item online, but picks it up in a store?

In addition, the online sales figures include all sales made by digital retailers, while the general merchandise number excludes things that are sold online. Auto parts, for example, are not part of the general merchandise category for brick-and-mortar chains, but when sold online, they count toward the digital sales number.

Shades of grey

There's no question that the growth of digital sales has siphoned a lot of revenue away from some brick-and-mortar chains. A number of retail chains have closed significant numbers of their stores, or shuttered all their locations, in each of the past few years. It's easy, but lazy, to attribute those closures entirely to Amazon and other digital retailers. 

Smart retailers that embraced the internet as a separate but still important sales channel have thrived. Their strategies varied, with companies like Walmart becoming internet innovators, while warehouse club Costco, for example, developed a narrower digital offering that was still appropriate for its members.

Are Sears, J.C. Penney and others failing because digital retailers took their business, or because they sat back and let it happen by refusing to adapt as the marketplace changed around them? It's pretty clear that many of the most-troubled chains -- if not all of them -- didn't do much to evolve.

Digital sales are growing, but they still account for just over 10% of all retail and food services transactions. The percentages will continue to rise, but we're a long way away from a time where e-commerce transactions really exceed the sales made in traditional brick-and-mortar locations.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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