Shift in Consumer Spending: What’s Next for E-Commerce?

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While consumer spending continues to increase, brick and mortar stores are seeing a decline in sales. So where is all the money going? Research has shown that consumers are doing most of their shopping on the internet. Online retailers are enjoying record sales. The question many people are asking is, what is the future of e-commerce? From digitization of the grocery industry to development of delivery apps, the future of e-commerce is ripe for growth and innovation.

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Shift in Consumer Spending

According to government statistics, department store sales have been on the decline since the early 2000’s. Census figures showed that sales peaked in January 2001 when a total of $19.9 billion in sales was reported. In January 2014, however, total sales reported were less than $14.2 billion. In the first quarter of 2016, Kohl’s announced a 3.9% drop in sales and an 87% drop in net income. On the other hand, Macy’s reported a 5.6% decline in sales, which is the most severe decrease since the second quarter of 2009. At the end of that quarter, Macy’s sales had slid 9.5%.

In 2016, Macy’s decided to close 100 of its 729 stores by 2017, and had already closed around 40 stores in 2016. In January 2016, Walmart announced a decision to close 269 stores in the United States and abroad. On the other hand, Sears Holdings Corporation, the parent company of Kmart and Sears closed over 230 stores nationwide.

Compared to 2015, non-store sales, which include Internet retailers, increased 10.9% in 2016. It is important to note that non-discretionary spending, such as education, insurance, health and housing has taken out an extra 4% from personal consumption expenditures in 2016 compared to 2000. This means that the discretionary spending available to traditional retailers has reduced by over $500 billion.

Amazon Inc.

In 2015, mega e-retailer, Amazon saw a 97% increase in sales year over year. The online retailer is predicted to exceed Macy’s as the top clothing store by next year.

How Consumers Make Purchasing Decisions

The way that consumers make purchasing decisions has changed drastically over the years. Nowadays, consumers normally stand in stores to compare prices and read product reviews on their smartphones. Family and friends also weigh in on purchasing decisions via social media. When they are ready to make a purchase, there is an endless list of online retailers ready to deliver products directly to them, sometimes on the same day. Today’s consumers have busy lifestyles and shopping takes a lot of time. Consumers find researching and shopping on the web far more convenient than shopping at brick and mortar stores. In many instances, consumers have more access to information online than they can get when talking to a sales associate at a brick and mortar store. Customer reviews and price comparisons enable consumers to feel more confident about their buying decisions while free shipping, a common feature in most online marketplaces make life more convenient for them.

How E-Commerce is Evolving

For some retailers, mobile is already a huge factor. At Gilt, for instance, the designer fashion retailer gets 50% of traffic and 30% of sales from mobile. Research has shown that Americans spend an average of 4.7 hours daily on their smartphones, which is much more than what their counterparts in 11 other developed countries spend on their smartphones. In a September 2014 survey, on smartphone use in the US between users aged 19 to 33 years, 40% of consumers in this group said they use their smartphones to make actual purchases while 60% used a computer. The survey also found that over two thirds of American millennials used smartphones to compare or check prices while a similar number used their smartphones to search for discounts and coupons. During the 2015 Cyber Monday, smartphones accounted for over 17.1% of sales compared to 11.1% on tablets.

Amazon Home Services

In March 2015, Amazon launched a new service that is meant to help consumers find professional services from over 700 service categories. A year later, Amazon has increased the number of metro areas where Home Services are available from 4 to 30, which is roughly over 40,000 zip codes nationwide. Another 500 services have been added to Amazon Home Services, bringing the total number of services to 1,200. Since its launch, the number of customer orders on Amazon Home Services has increased by more than 20% per month.

Amazon Fresh

This is a service allowing consumers to shop for fresh groceries online, such as meat, vegetables, fruits and dairy. Customers can also shop for health and beauty products as well as pet supplies, household goods, baby products and prepared meals. Amazon Fresh offers over 95,000 different products, all of which can be delivered on the same day, if the order was placed by 10am, or the next day, if the order was placed after 10am. To make a purchase from Amazon Fresh, members have to subscribe to Prime Fresh, which is an upgraded Prime membership that costs $299 per year and offers numerous advantages. The service is available in Seattle, Boston, Northern California, New York metro, Southern California, Philadelphia metro, Stamford and Baltimore.

Amazon Prime

The number of Amazon Prime memberships in the US jumped 35% to 54 million in 2015. It is estimated that one in five Americans is a member of Amazon Prime. According to recent figures, nearly half of US households have Amazon Prime memberships. On average, Amazon Prime members spend around $1,100 annually on Amazon products, not including the $99 annual membership fee. Non-members spend around $600 annually. Prime membership comes with free two-day shipping or overnight shipping on a variety of products.

It is estimated that one in five US households bought groceries from an online store at least once in the previous month. Younger people are more likely to shop for food on the web. A recent survey revealed that half of consumers aged between 25 to 34 years were likely to buy groceries online. That said, Amazon controls over 20% of the online food and beverage market. It is interesting to note that the average online shopping basket costs $157, which is three times what people people spend on their shopping trips. US consumers say they order groceries online for home delivery. In 2014, consumers spent $18 to $24 billion on groceries.

E-Commerce Trends and Predictions on Spending

Online shopping is predicted to increase by 45% by the end of 2016. In the next 5 years, online sales are projected to reach $523 billion, an increase of 56%, from the $335 billion recorded in 2013. Mobile devices are expected to be a key driver in that growth.

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