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A Cyber Smackdown for Retailers

By Rich Duprey - Nov 29, 2012 at 6:00PM

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Are online sales dooming bricks-and-mortar retailers this Christmas?

From humble beginnings as a made-up marketing gimmick by the National Retail Federation, Cyber Monday has turned into the real deal as retailers offer special deals just for that day. So we pull on slippers, shuffle off to the computer, and drop a few more coins on Christmas spending. According to the market research folks at comScore, this year we cracked open our wallets to the tune of $1.5 billion in sales.

While there was a lot of consternation over Wal-Mart (WMT 1.97%) and Target (TGT 2.41%) pushing the boundaries of "holiday creep" by opening their stores late on Thanksgiving Day, consumers spent $633 million that day, up 32% from 2011. Which brings to mind the point that if consumers wouldn't shop, retailers wouldn't open, so you can't blame the stores for trying to make themselves as convenient as they can for those who want to spend.

A self-fulfilling prophecy
Even though Cyber Monday was a ploy to get people to keep the spending orgy going, Black Friday still holds its own with both bricks-and-mortar and e-commerce retailers. Online sales surged 26% the day after Thanksgiving, crossing over the $1 billion mark for the first time ever with 57.3 million Americans visiting e-commerce sites, up 18% from a year ago. Not surprisingly, Amazon.com (AMZN 3.66%) was the most visited destination, according to comScore, followed in order by Wal-Mart, Best Buy (BBY 2.36%), Target, and Apple (AAPL 4.08%).

What this shows is that traditional retailers need to start acting more like their e-commerce rivals if they want to survive. Nowhere is that more evident than at electronics superstore Best Buy, which has witnessed the steady erosion of sales as Amazon has eaten away its customer base. The much-discussed phenomenon of "showrooming," where consumers go to Best Buy stores to sample the merchandise only to turn around and buy it from an online competitor, has brought the retailer to its knees.

Times they are a-changing
Circuit City's bankruptcy was really the herald of these changed times, and Radio Shack (RSHCQ) is going the same way, reducing the number of stores it has in operation. Best Buy is now quickly following suit.

The Business Courier says the real estate economists at CoStar Group figure that if e-commerce didn't exist, retailers would need 160 million square feet more space for merchandise to account for those sales, meaning online sales are dealing a blow to the bricks-and-mortar space, though not a mortal one. With e-commerce representing only 6.7% of total retail sales in the third quarter, like Mark Twain's, the death of the physical store has been greatly exaggerated.

Still, it really depends on the industry. Auto parts suppliers like O'Reilly Automotive or sporting goods shops like Cabela's have profitably and productively grown their online and physical presence, while clothing retailers are seeing the e-commerce sites cannibalize sales.

Everything old is new again
The risk for retailers pushing sales further and further into the quarter is that they'll take away momentum later in the year. If you bought online last weekend, will you also be shopping the week before Christmas (also one of the busiest sales periods of the season)? We've seen the phenomenon play out before, where strong November sales lulled analysts into thinking December would be just as robust, only to have sales fizzle.

The Black Friday extravaganza was a welcome change from October, when retail sales fell, the first time in four months that that happened. But with cautiousness about inventory levels and a looming fiscal cliff that could dramatically change tax policy, it isn't exactly clear that Christmas for retailers will be one filled with good cheer.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.64 (4.08%) $5.86
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$128.48 (1.97%) $2.48
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,302.93 (3.66%) $81.38
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$83.99 (2.36%) $1.94
Target Corporation Stock Quote
Target Corporation
TGT
$167.14 (2.41%) $3.94
RS Legacy Corporation Stock Quote
RS Legacy Corporation
RSHCQ

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