Brick-and-Mortar Retail Adapts
The U.S. consumer is alive and well: unemployment is at 3.7%, the lowest since 1969 and wage growth is accelerating 3.1% in October with consumer confidence at an 18-year high. Although several major retailers such as Toys “R” Us have closed their doors this year, many others are well-positioned with streamlined operations, capitalizing on the strong consumer economy and finding new opportunities among leftover categories that major retailers have exited.
Unemployment stands at a 49 year low
Toys “R” For All
The $27 billion toy industry is expected to deliver more than just gifts under the tree, with potentially $5.6 billion in sales this year. Following the liquidation of Toys “R” Us in March, retailers are eager to capitalize on the new market opportunity and win over shoppers by expanding their range of toy selection, adding more aisles and stocking up their in-store inventory.
But retailers less known for their toys such as Party City, the leading vertically integrated party goods company in North America, is also expanding into toys by piloting “Toy City” pop-up stores this holiday season. The temporary toy storefronts are Party City’s first step toward a more comprehensive and long-term expansion into toys. Even Best Buy, the American multinational consumer electronics retailer is also pushing into the toy market this holiday season.
In turn, reminiscing on the iconic “Wish Book” distributed by Sears, Amazon mailed out a toy catalog, “A Holiday of Play,” to millions of customers with the hopes to push further into physical retail. The toy catalog features toys with QR codes, allowing shoppers to scan and purchase products.
E-Commerce Continues to Grow
In an already demanding market, e-commerce continues to grow and evolve rapidly. Building on the momentum of the past several holiday seasons, the latest projections from J.P. Morgan Global Research estimate e-commerce to represent 14.2% of overall retail market share and this is projected to rise to 17.8% by 2020.
U.S. e-commerce as % of adjusted retail
Source: U.S. Department of Commerce, J.P. Morgan estimates. Note: Adj. retail sales excludes food services, auto, & gas.
Amazon Setting the Bar Again
Tracking J.P. Morgan’s expectations for a 16.5% increase in e-commerce sales this holiday season, the firm also expects Amazon to remain the dominant e-commerce player with a 41% share of U.S. e-commerce. As a leader in consumer innovation, Amazon has put additional pressure on overall retail competition by offering free shipping to all U.S. customers for the first time ever, in addition to over three million items eligible for same-day delivery for Prime members. Competitors have also announced faster and cheaper delivery options, with Target offering free two-day shipping on hundreds of thousands of items for the first time ever with no minimum purchase while Walmart expanded their free two-day shipping option to millions of new marketplace items with a $35 order minimum.
Amazon U.S. sales as % of e-commerce
Source: U.S. Department of Commerce, J.P. Morgan estimates. Note: Adj. retail sales excludes food services, auto, & gas. AMZN U.S. GMV as % of e-commerce excludes Whole Foods GMV.
Furthermore, Amazon’s recent strategic moves prove that the line between traditional retail and e-commerce is becoming blurred. As part of Amazon’s fast-growing store strategy, Amazon 4-star, a new physical store holding only items rated 4 stars and above “is a direct reflection of [Amazon’s] customers—what they’re buying and what they’re loving.”1 In an effort to widen the gap even further from competitors, Amazon continues to experiment with its 2017 acquisition of Whole Foods, by offering same-day delivery and grocery pickup options through Prime Now in select cities. With multiple competitors sights' set on Amazon this holiday season, the retail giant continues to innovate in order to meet the demand of the festive period while gaining market share.
Sleigh Bells Will Ring and so
Will Cash Registers
With holiday shopping approaching and retailers unveiling their holiday deals, consumers are already researching reviews and deciding what they’re buying, when they’re buying and where they are shopping. Driven by high consumer confidence, low unemployment and accelerated wage growth, both big box retailers and e-commerce giants are ready and well-positioned for what is expected to be another strong holiday shopping season.
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1Day One Staff (2018, September 26). Introducing Amazon 4-star. Retrieved November 12, 2018, from https://blog.aboutamazon.com/shopping/amazon-4-star
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