Spring 2000

Internet Captures Small Portion of Retail Sales

Web of Alliances

The Marketing of a Net Company

Online Sales: Comparing Annual and Holiday Trends

Internet Tax Freedom Update

ICSC Public Relations Task Force

Internet Captures Small Portion of Retail Sales
From all indications, 1999 was retail’s best year of the past decade. Data from the U.S. Census Bureau shows that in 1999 total non-auto retail sales were $2.2 trillion: a gain of 8.2% over the previous year. That topped a 6.2% gain in 1994 and a 6.1% gain in 1990. According to LJR Redbook, virtually all retail segments prospered. Warehouse club sales were up 8.6%; apparel specialty store sales were up 8.5%; discount stores were up 7.3%; off-price retailers were up 4.6%; and regional department stores posted a 2.6% gain. According to ICSC’s Monthly Mall Merchandise index (data collected from 500 enclosed malls) overall mall sales per square foot increased by 2.4% in 1999.

In 1999, the Internet captured a small share of sales and a large share of media attention. Hardly a day went by without a new announcement of the latest Internet retail sales forecast. Often the new forecast eclipses the last one by an order of magnitude. For instance, estimates of 1999 online sales ranged from $15 billion to $24 billion depending on who was doing the projections.

With no common vocabulary for what constitutes an online sale, questionable data collection methods and forecasters who appear to have differing agendas, one should be skeptical about those numbers. Let’s assume, for the sake of discussion, that the high estimate is right, and $24 billion is accurate. In that case, the Internet still captured less than 1% of non-auto retail sales in 1999.

The best information we have about how these online sales break down by category is shown here on the next chart.

Travel, computer products and books account for almost 75% of consumer dollars spent on the Internet. Apparel, the mainstay of mall retailing, is a very small player. For us in real estate-related industries, this matters. It shows that — at least for now — commodity, non-bulky items that you don’t have to see before you buy are dominating online sales.

Looking ahead again, to 2003 online sales — estimates diverge quite drastically, from a low estimate of $75 billion to a high estimate of almost $144 billion.

According to our calculations, the high estimate, when stripped of travel bookings and event tickets —both non-retail items — and automobiles, would represent something less than 5% of total non-auto retail sales.

And if you consider that some meaningful proportions of online sales are simply migrated paper catalog sales, the net loss to land-based retail channels would not constitute a lethal blow to most real estate developers. This conclusion only holds, however, if the growth-rate of online sales begins to level out within the next few years and synchronizes more closely with that of all retail sales.