Continous increase of e-Commerce sales participation in all retail sectors than comes with an slight Ebitda reduction during the last five years
Restoration Hardware
- Tell me in which retail sector you are and I will tell you what percentage of your sales should come from eCommerce (from 4% in mass market sector up to 22% in leisure/technology . Also what growth perspective you should have.
- MHE, retail consultancy, has analysed the results and eCommerce performance in 55 retail chains representatives of major sectors such as fashion, leisure/technology, home, health and beauty and mass market formats in USA during the last five years (2016-12). This market provides good and consistent data and available to the public.
e-Commerce participation as a % of total sales
- e-Commerce already represents 9% of total sales in the whole group of retail chains selected
- Leisure/technology sector keeps on heading the group (22 %) without any surprise in the sales
- Starting point was not very similar depending on which sector you are but as time goes on, a convergence of major retail sectors can be perceived. Home sector, with an outstanding +23% eCommerce CAGR sales growth is catching up quickly
- Health & Beauty are coming closer and closer in many aspects and eCommerce is not an exception for this merging trend.
e-Commerce CAGR sales growth per retail sector in period 2016-12
Yearly growth rates across sectors can be grouped in three bands:
- Home goods with 23% CAGR
- Leisure/technology with 16% CAGR
- Fashion, heath and beauty and mass market with 11-12% CAGR
Impact on Ebitda
- Ebitda has suffered an small erosion during the period 2016-12 reaching 6% of sales in year 2016
- Negative correlation is shown below between eCommerce sales share and achieved Ebitda. This reduction can be caused by several factors including lower prices, higher operation costs (certainly at the incipient eCommerce phase) and potential store sales productivity linked to eCommerce cannibalization
“Winners” segment
- We have identified a group of retail chains (winners) that are over performing in the period of 2016-12 to check how eCommerce is doing in these organisations
- e-Commerce sales mix (15%) in 2016 is much higher than the average for the whole companies group (9%)
- Winners are enjoying a higher substantial CAGR in sales over the period (2016-12). What really makes “winners” different is the CAGR sales growth for their physical stores 12%. Therefore, it is clear that their good performance is not only based upon eCommerce activity but improving significantly also their stores productivity
- On the other hand, Ebitda has suffered during the same period from 19% on sales to 16% in year 2016
Future developments in the retail sector will not be purely eCommerce based, spite of its continuous sales growth. The transformation should include as well a clear physical store improvement task.
The main challenge ahead in a growth mood will be to sustain the current Ebitda (as % of sales) and satisfying at the same time new Omnichannel customer expectations.
MHE retail consultancy, works for major brands and retail chains to improve strategy and operations in an Omnichannel environment.
More info: carlos.dominguez@mheconsumer.com
