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Ecommerce vs Retail

The first American department store, Arnold Constable, was founded in 1825. In 1858, the first Macy’s was opened as a dry goods store by Rowland Hussey Macy. In 1902, the first J.C. Penney opened in Kemmerer, Wyoming. Department stores like these were the backbone of the retail market for the vast majority of both the twentieth and twenty-first century. As shopping malls became ubiquitous around the United States, they followed the consumer traffic. Now, in the age of computers, they are being forced to either join the online marketplace or go out of business entirely.

Currently, ecommerce represents approximately twelve percent of all retail sales globally. This is a three hundred percent increase in market share in only ten years, a level of growth that is only projected to continue in the future. It is estimated that over a billion people will join the middle class in the next few years. When this happens, online business across the globe will see a huge increase in demand, as a new middle class enjoys the luxuries associated with a higher level of technological development.

As a result of the huge profits ecommerce businesses have been enjoying, retail businesses have taken huge losses. Online outlets like Amazon have made it incredibly difficult for more traditional retail companies to bring customers to their stores. After all, most consumers see no reason to drive to the mall when a larger variety of products are available online for a cheaper price. With the click of a button, the average person can have virtually anything they want delivered to straight their home.

Instant gratification is the name of the game in this new world dominated by increased computerization and automation. Their inability to adapt to the new priorities of the shifting demographics is the single greatest threat to big box retailers’ ability to stay afloat. As a result of this sluggish shift towards online marketing, over 12,000 brick-and-mortar locations have closed over the last eight years, and things are only going to get worse.

Today, there are about 1,200 shopping malls spread across the United States. Over the next five years, more than half of those malls are expected to close down. In 2018 alone, approximately 13,000 retail stores are projected to close in North America. This phenomenon has been dubbed the ‘retail apocalypse’.

While the growth of ecommerce has certainly contributed to the dying retail market, it would be an exaggeration to say that it is the only factor. One significant factor has been the decline of America’s middle class. The cost of living has continued to rise over the years, and the wages earned by the average American has failed to increase at a commensurate rate.

Another problem for traditional retail is the common use of leveraged buyouts. Leveraged buyouts are a risky process even when business is good, using a company’s cash flow as collateral for their borrowed money. The lingering effects of the great recession and lost business to ecommerce distributors has hurt income of many retailers. Once they failed to generate sufficient cash flow to service their debt, they were faced with insolvency or debt to equity swaps; either declaring bankruptcy or losing control over their business to the lenders.

While the brick and mortar locations may have to go, there is still hope for traditional retailers. It may require a huge change to their business models, but those who refuse to adapt get left behind. They will either join the ecommerce market or they will slowly but surely go out of business. The rapid development of technology and the convenience of shopping via the internet has left them with no other options.

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