Growth of Internet Sales Puts Crimp in Retail Store Traffic

Friday, 08 Aug 2014 07:49 AM

By Dan Weil

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U.S. retailers are enduring a sharp drop in their store traffic, hit hard by the explosion of purchases on the Internet.

The situation is forcing retailers to curb their expansion of new stores, The Wall Street Journal reports.

"We're in a transformation where retailers are recognizing the Internet isn't going anywhere and to be competitive, you have to have a more compelling online presence and an efficient store base," Charles O'Shea, an analyst at Moody's Investors Service, tells the paper.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000


Shopper visits to stores have dropped 5 percent or more from a year earlier in every month for the past two years, except this April, according to research firm ShopperTrak, The Journal reports.

Meanwhile, Internet sales have soared more than 15 percent in every quarter for the past two years and now account for 6 percent of all retail sales, according to the Census Bureau.

It's no wonder then that growth in the number of stores run by the 100 largest retailers has slowed to 3 percent from 12 percent in 2011, according to Moody's.

Staples seems to understand the shift and is changing its strategy, according to The Journal.

Staples CEO Ronald Sargent told investors earlier this year that brick-and-mortar stores "have to earn the right to stay open," as approximately half its sales originate online. The company plans to close hundreds of physical locations during the next two years.

"While we don't take this decision lightly, we know it is the right thing to do for the long-term health of our business as we become more efficient and increase our focus online," he said.

To be sure, some economists view retail sales overall as strong, after gains of 0.2 percent in June and 0.5 percent in May.

The data show "a strong consumer feeding into second-quarter GDP growth," Michael Hanson, U.S. senior economist for Bank of America, tells Bloomberg. "You are seeing some steady gains in employment, less so in wages, but that does help."

The economy expanded 4 percent in the second quarter.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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