3 Reasons Online Shopping Is Huge (And Not Just on Cyber Monday)

Believe the hype about e-commerce growth and potential

3 Reasons Online Shopping Is Huge (And Not Just on Cyber Monday)

Cyber Monday is in a unique situation, as the popular online shopping day is becoming more important and less important at the same time.

On the one hand, Cyber Monday continues to grow in size. Adobe Systems (ADBE) predicts that today’s total Cyber Monday 2013 sales should hit nearly $2.3 billion, which would mean the highest online sales in history.

But online shopping is increasing in popularity across the board, making Cyber Monday par for the course as opposed to special. Sure, countless bargain-hunters are tracking the best Cyber Monday deals today … but e-commerce was also the modus operandi for a good chunk of the early-bird bargain-hunters that began their prowl on Thanksgiving and Black Friday.

Adobe actually predicted record e-commerce days not just for Cyber Monday 2013, but for Thanksgiving, Black Friday and the overall shopping season. And so far, online shopping has been off to a hot start. Bloomberg noted that online sales boomed by 20% on Thanksgiving and 19% on Black Friday 2013 vs. a 2.3% gain at brick-and-mortar stores … adding that increased online shopping could have been part of the reason foot traffic actually declined on Friday.

Screen Shot 2013 12 01 at 1.30.36 PM 3 Reasons Online Shopping Is Huge (And Not Just on Cyber Monday)
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Of course, just as increased online shopping during the holidays is hardly exclusive to Cyber Monday, increased e-commerce overall is hardly exclusive to the holiday months. As you can see in the chart to the right, e-commerce sales have been growing at a steady clip for the past decade.

This is where things get interesting, though. While the clear upward march for e-commerce didn’t surprise me when I saw this chart, the actual percentage did — especially considering all the hype around online shopping. In the third quarter of the year, e-commerce sales represented just 5.9% of total retail sales on seasonally adjusted basis.

Sure, that’s a solid percentage point higher than the year-ago period and triple the percentage of a decade ago. Plus, the growth has taken place as overall sales chug higher. But 6% hardly sounds dramatic — especially when we so often hear about the “explosion” of e-commerce and how names from Walmart (WMT) to Staples (SPLS) to JCPenney (JCP) to Target (TGT) are all trying to improve their online shopping status.

If we dig a little deeper, though, several factors explain why we should believe the hype about e-commerce for Cyber Monday 2013, the entire holiday shopping season and years beyond … despite the fact that it remains a sliver of the pie.

Here are three such factors that help explain why the percentage of online sales is still relatively low now … and why it will keep growing.

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.

3. Demographics

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.

Bottom Line

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.


Article printed from InvestorPlace Media, http://investorplace.com/2013/12/cyber-monday-2013-online-shopping/.

©2014 InvestorPlace Media, LLC

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