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E-commerce Disruptors

shutterstock_243532630Much has been made lately of the level of disruption e-commerce has had on the retail sector. Technology is changing the way consumers engage with retailers on almost all fronts, providing opportunities as well as challenges for operators, both large and small, in almost every industry. Online sales as a whole have grown tremendously over the past five years; IBISWorld estimates that revenue from the E-Commerce & Online Auctions industry has increased at an annualized rate of 8.9% over the past five years to $314.9 billion in 2015.

But not all retailers have been equally affected by the emergence of online shopping. Some industries are clearly more susceptible to online penetration; why shop for electronics in store when you can purchase them at a heavily discounted price from the convenience of your own home? The economy is currently replete with examples of industries turned upside down in the face of rising competition from online retailers: see Staples and Office Depot’s recent merger proposal or Radio Shack’s bankruptcy. On the other hand, some goods have proven more difficult to sell over the internet. For example, groceries, once thought to be an e-commerce no-brainer, have yet to really take off online.

So what products, and corresponding industries, are growing online? The following chart provides a comparison of the annualized growth rates of store and online sales of a variety of goods.*

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As is clearly demonstrated above, e-commerce sales have grown at a dramatically faster rate than store sales over the past five years in almost every product category. This is to be expected from a channel that is growing from a very low base—ecommerce has only been around for 15 or so years—yet the disparity in growth rates across so many industries is telling of this new technology’s potential to expand across the broader retail sector.

One thing to keep in mind when thinking about e-commerce is that growth rates don’t equal disruptiveness. For example, online grocery sales have grown tremendously at an estimated annualized rate of 16.7% during the past five years to $12.7 billion. However, online grocery sales pale in comparison to those made in stores, which remains the preferred food shopping channel for the vast majority of consumers in the United States. In contrast, online camera and camcorder sales have grown at a much slower annualized rate of 0.88% during the past five years, but the vast majority of these products are now sold online. Similarly, a greater number of men’s clothing sales are being completed online relative to overall men’s clothing sales, although online sales of men’s clothing are increasing rapidly. The reasons for why some products sell online and some don’t are varied and particular to each industry. E-commerce simply doesn’t work across every segment of the retail sector.

Looking forward, the industries that are most likely to continue to be disrupted by online sales are of course going to be those that maintain high growth. Here’s a comparison of the same products but with IBISWorld’s anticipated growth rates over the next five years. Generally speaking, ecommerce growth is going to slow moving forward as online sales mature. Still, growth of a number of online channels is expected to continue to exceed store sales across a wide variety of industries. This clearly means more disruption to come.Untitled2

*Store sales refer to industry sales of goods which may be broader than online sales which refer to the sale of specific products.

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