Based on changes in market share and other metrics, Deloitte Consulting LLP has created a “Retail Volatility Index” and in a report released today said since 2010 “volatility in the retail industry has increased 250 percent, resulting in $200 billion more of retail sales being ‘traded’ among competitors.”
One startling fact emerged from the report: traditional bricks-and-mortar retailers have stolen market share from pure-play online retailers.
The firm said the volatility index is a simple measure of disruption in the retail market, and is “being driven by fragmentation of market share as small and midlevel players collectively steal share from traditional retailers — rather than the consolidation of the big getting bigger, which has driven the industry for the last 100 years.”
The index quantifies what has occurred in the fashion apparel and retail industry since the Great Recession. Larger department and chain stores such as Macy’s Inc., Sears Holdings Corp. and J.C. Penney & Co. Inc. have reexamined their real estate holdings and have closed stores while other retail brands have gone into bankruptcy — most recently being The Sports Authority. These changes have opened opportunities for brands to expand into the market as well as for smaller players to steal share.
And regarding the notion that online sales are to blame for market share shifts, the authors of the report concluded something different.
Kasey Lobaugh, principal and chief retail innovation officer at Deloitte, said “traditional retailers are being subjected to death by a thousand paper cuts where the competition is no longer the big box retailer across the street, but rather a myriad of new players — this represents a sea change for the industry.”
“Conventional wisdom might also say the loss of share by traditional retailers is simply an online versus bricks-and-mortar battle, with traditional retailers losing the e-commerce game — which our research also shows to be untrue,” Lobaugh added.
The authors said of the top-25 bricks-and-mortar retailers, 16 have “robust and growing e-commerce sales that have consistently outperformed the broader e-commerce retail market.”
“Between 2010 and 2015, these bricks-and-mortar retailers grew their e-commerce business by an average of 20.9 percent, compared with a 15 percent growth rate in the overall market — indicating these retailers are actually taking share from those others who operate in the e-commerce space,” the researchers said.
In the report, the authors noted that if large retailers are finding success with “e-commerce offerings, as evidenced by their performance, yet they are losing share, then this must tell us that the gain in e-commerce sales doesn’t offset the loss in companies’ traditional business. This tells us that this is not purely a story about e-commerce. It’s more complex than that.”
Indeed, in a separate report from HRC Advisory, an analysis of retail e-commerce sales over the past six years has shown that companies are losing about 25 percent of their pre-tax earnings to their e-commerce business. This is due to investments made in omnichannel retailing as well as the cost of fulfillment along with other factors.
Jacob Bruun-Jensen, principal at Deloitte and a co-author of the study, said that on the surface, “the broader retail market appears tepid, but underneath that surface, there is a lot of commotion.”
“When measured at its full depth, the market has become highly volatile and increasingly fragmented,”Bruun-Jensen noted. “Rather than a give-and-take among the top 25 retailers, there are numerous forces at play, and share is no longer just changing hands and consolidating with the big retailers.”
The researchers said that “fragmentation in particular gives smaller retailers the upper hand in the market as they focus on niche products and experiences compared to the big retailers who cast wider nets.”
The authors also noted that there are opportunities for bigger retailers. The report “found that while the top retailers who offer the most differentiated product and experience (versus those who compete more so on value and convenience) show the highest compound annual revenue growth rate and margins, substantially beating the broader market.”