Forward Janesville - TheReport - Second Quarter 2019

The retail sector is undergoing rapid change. Like many small markets in the U.S., retail in Janesville is not immune to these changes. Major retailers like Toys 'R' Us, Sears, Boston Store, and ShopKo are all out of business. On the other hand, new retail outlets and dining options have opened, and retail sales are very strong. So, what really is at work? Recent statistics lend some clues. In 2008, retail sales in Rock County totaled $207,851,040. A decade later, in 2018, total retail sales had grown to $285,288,780. This represents an average annual increase of 3.7 percent per year over that ten-year period. Retail sales in Rock County managed to grow over the decade despite a seven percent decline in sales in 2008 and 2009 when the recession took the wind out of retail's sails (or sales). This strong growth trend is continuing in early 2019 with sales up 12 percent for the first two months of 2019 vs. 2018. Nationally, retail markets were bolstered by a strong labor market, growth in disposable income, and elevated consumer confidence. I suspect those factors align with what we are seeing in Rock County with historically low unemployment and rising wages/salaries. Online e-commerce purchases account for 16 percent of total retail sales. Forecasts commonly project online sales to grow to 25 percent by 2026. The flip side of the online sales numbers is that 84 percent of transactions take place in stores. The death of bricks and mortar retailing has been, at least up to this point, greatly exaggerated. However, online retail sales are increasing at a faster pace than total retail sales which would indicate a slow shift to online purchases. According to a study by global financial services company UBS, 8,000 to 8,500 retail stores, excluding restaurants, will close for every one percent increase in online penetration. One silver lining in the report is that as stores close, remaining store locations often get a bump in customer traffic and retail sales. eMarketer, an organization that tracks trends in online sales, claims that Amazon now accounts for approximately 50 percent of online sales. More than 25 percent of Amazon's sales are from one product category: computers and consumer electronics. The fastest growing category is apparel and accessories which account for about 15 percent of Amazon sales in 2018. Additionally, 85 percent of online purchases from social media come from Facebook, which has the highest conversion rate of all social media platforms. Eight-in-ten Americans shop online, and mobile e-commerce sales are projected to exceed 65 percent of total e-commerce sales in 2019. Mobile shoppers are impatient: 40 percent of mobile users leave pages that take longer than three seconds to load. One takeaway from scanning recent articles about changes in retail is the suggestion that consumers are looking for an experience, not just a transaction. That translates to the food and beverage category, where Americans are increasingly inclined to spend discretionary income on eating out and having a good time. But even more traditional retail is moving in the direction of creating an immersive experience for the customer and providing services whenever possible. A common thread for retailers who will prosper is the idea of leveraging the best of both the in- store experience with a digital option. Blain's Farm & Fleet is a good example: I often search for products on Blain's web site and then stop by and make the purchase. It is not surprising that Blain's Farm & Fleet is opening new stores and growing their footprint in Michigan. The bottom line is that there is still a bright future for bricks and mortar retailing. The often-cited advantage of online sales tax avoidance is disappearing as a result of last year's Supreme Court ruling giving states the option to require internet retailers to collect sales taxes. Ultimately, shoppers want an engaging, fun experience even if it involves both digital and physical channels. John Beckord • President, Forward Janesville • johnb@forwardjanesville.com THE RETAIL SECTOR IS CHANGING. FAST. 4 • W W W . F O R W A R D J A N E S V I L L E . C O M