Why Black Friday’s sales results mean a huge shift for retail

Market Realist

Key opportunity: Online retail's dramatic success (Part 3 of 4)

(Continued from Part 2)

Traditional retail falls behind

In recent years, online retailing has captured a growing share of consumer spending. As we saw in Parts 1 and 2 of this series, online retailers have found success in increasing penetration with promotions such as Cyber Monday as well as ongoing low prices and convenience. E-commerce’s accelerating growth has boosted many companies while weakening the prospects of others. Companies like Amazon (AMZN), eBay (EBAY), and Overstock.com (OSTK) are prime beneficiaries of this trend, while more traditional retailers like Sears (SHLD), JCPenney (JCP), and Best Buy (BBY) have suffered. Amazon and eBay are members of the First Trust Dow Jones Internet Index ETF (FDN), which corresponds to the performance of the Dow Jones Internet Composite Index.

Black Friday sales fall

As online retailers continue to succeed in attracting customers, many of their gains have come at the expense of traditional brick-and-mortar stores. Many retailers have been forced to reduce their footprints and launch their own online sales channels in order to compete with the new breed. The success of Cyber Monday in particular highlights the difficulties facing traditional retailers.

The chart above shows the growth in sales on Black Friday for traditional retailers. For the first time, Black Friday sales recorded a 3.4% decrease, as brick-and-mortar stores lost share to online retailers. Sales didn’t even decline in either 2008 or 2009, at the depth of the financial crisis. The importance of this event is difficult to overstate. Retailers typically operate at a loss until the holiday season, when they generate most of their profits for the year. If this trend extends, traditional retailers will fall under significant pressure and find it difficult to keep stores open with their most important selling season lost to e-commerce. However, the impact will remain a windfall for companies like Amazon and eBay.

Continue to Part 4

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