1. Sales Mix
Why the percentage is still low: To start, remember that total retail sales — the denominator in our percentage equation — includes … well … everything that is sold. The total includes things like personal care items, groceries and booze that most of us pick up at the store during our day-to-day routine, along with sales at gasoline stations and motor vehicles dealers. In fact, gas and vehicle dealers made up 35% of total retail sales in the most recent monthly report. If we assume that ratio is pretty steady and back out 35% of our denominator in the equation, the e-commerce percentage already jumps to just under double-digits.
Why it will keep growing: At the same time, consumer staples like groceries and other household items haven’t traditionally been sold online because of cost and freshness. Most household staples are too big or too cheap to be worth the cost of shipping. Expect that to change. Internet juggernaut Amazon (AMZN) has been investing in the infrastructure necessary to roll out Amazon Fresh — its same- and next-day grocery delivery service — across the country. Meanwhile, other startups are eager to get a piece of the relatively untapped market. Boxed, for example, is a mobile app that allows users to order light household items in bulk and on the cheap.
2. Internet Access
Why the percentage is still low: Most of us may take broadband access for granted, but as of earlier this year, the Pew Research Center reported that 30% of Americans were still lacking broadband access. Meanwhile, Susan Crawford at Wired added out that some slower download speeds lumped in the broadband category were “absurd” — meaning the percentage of Americans lacking Internet fast enough for online shopping is indeed significant.
Why it will keep growing: Broadband rollout and adoption across the country should be be a tailwind for online shopping. And we can’t ignore the smartphone factor. PCWorld noted this finding from the aforementioned Pew study: “While black people and Latinos are less likely to have home broadband than white people, their use of smartphones nearly eliminates that difference.” Once mobile security catches up to Internet security and more retailers tailor mobile apps to e-commerce, the increased adoption of smartphones could also bridge the digital divide and boost e-commerce.
Why the percentage is still low: Finally, Baby Boomers still have the largest purchasing power — and they are far less likely to shop online. Many don’t trust Internet security, many are set in their ways … and many old folks are the ones that don’t have Internet in the first place. In fact, 80% of adults ages 18-29 have high-speed broadband vs. just 43% of seniors 65 and older.
Why it will keep growing: Demographics will clearly shift with time. In fact, the purchasing power of Millennials will surpass that of the Boomers in 2017 or 2018, depending on the source. That shift by itself should be a huge boon for e-commerce, as this group “has grown up embracing the deep discounts and convenience offered by online shopping,” as eMarketer put it. In fact, a recent survey showed that 40% of males and 33% of females in the 18-to-34 age group said that ideally they would buy everything online.
The potential for e-commerce is both real and huge, despite the fact that online shopping only makes up a small slice of the overall pie now. These three under-the-radar factors are just a few that are both holding the current percentage back now — and could boost online sales in years to come.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.