Online Risk for Brick & Mortar Apparel and Footwear Hits Critical Mass

If you have been a fan of the Internet since the mid-1990s or even the late-1990s, you have seen a massive change of how the Internet is used and how real-world companies have had to adapt to compete against virtual companies. One big risk for brick and mortar retailers going to back to the dawn of eCommerce was that was present was when the public gets comfortable enough and familiar enough with the process of storing credit card data online and getting to have their goods delivered without ever leaving their desk. Now that is the case, and it may be a from a smartphone.

Moody's has issued a report showing that the surge in online sales prompts a rethink among apparel retailers. The report is even titled "Apparel Retailers at the Crossroads." It has long been thought that apparel might be immune to online sales cannibalization. After all, what do you do when you have a return because that size-8 dress or that size-10 shoe doesn't fit the way you hoped it would? Moody's is signaling that the crest has reached the apparel market now.

We want to stress one issue to our readers before we get into the Moody's report today. If a clothing or apparel retailer thinks they are immune to the web, they need to consider the lessons learned by Best Buy Co. (NYSE: BBY) after getting cannibalized by Amazon.com Inc. (NASDAQ: AMZN). The thought ten years of ordering large flat panel TVs and high-end computing online was difficult to endorse as a mainstream trend. It is commonplace now, and some accuse the Best Buy stores of being physical showrooms for shoppers to do live price comparisons on Amazon. Now consider that the footwear and apparel segment is at the 10% mark of market share when it comes to online sales and consider that Amazon.com now sells almost everything including apparel.

Back to Moody's…

Moody's noted, "Online sales now exceed 10% of all apparel and footwear sales in the US, which means retailers face some strategic decisions… We estimate that in the US online apparel and footwear sales will top $40 billion in 2013 and $45 billion in 2014. The online channel is now a crucial driver of growth for clothing and footwear retailers, to the benefit of the entire sector." The outlook is simple here: department stores and specialty apparel retailers must make some critical strategic decisions around store counts, marketing and how they spend their capital if they are to remain relevant over the long term! Step back a few words here: RELEVANT!

Margaret Taylor, the Moody's VP in charge of the report, projects that the companies which invest in technology, fulfillment capabilities and inventory to provide a seamlessly integrated store and online shopping experience will benefit the most from increasing online sales. There is also the warning that these companies need to invest in in-store efforts and branding to fend off the online threat.

Taylor considers department stores such as Nordstrom Inc. (NYSE: JWN) and Macy's Inc. (NYSE: M) as leaders in "providing an integrated, multi-channel shopping experience." Gap, Inc. (NYSE: GPS) was listed as the same. Taylor went on to say that strong growth in online apparel and footwear sales actually gives department stores and specialty apparel retailers the opportunity to expand their customer bases and might even help department stores combat a decade-long secular decline in brick-and-mortar sales. Then there is the other end of the spectrum. TJX Companies Inc. (NYSE: TJX) remain on the sidelines with little or no online merchandise selling.

If you consider the online world of apparel and footwear, Amazon has not backed away. It owns Zappos and has made many efforts to dominate other areas in and out of many retail segments. To think that online is now over 10% of sales in a segment which used to be considered somewhat protected may sound very large. To imagine $40 billion this year and $45 billion next year only in online apparel and footwear sales really puts things in perspective.

Another sea change is becoming the norm.

Filed under: 24/7 Wall St. Wire, Apparel, Consumer Goods, Internet, Retail Tagged: AMZN, BBY, GPS, JWN, M, TJX