But these figures just report the average across all retail categories from motor vehicles to health products.
The other big data error these guys discovered was in reporting what physical retail stores themselves are doing online.
If you looked at the Census data, you’d think physical retailers were just sitting out the online revolution. It turns out Census missed a massive amount of online activity by the online divisions of physical retailers themselves, which of course, all physical retailers are doing now – and some more than others.
In some retail sectors, like general merchandise (think Walmart, Kohl’s, Target), clothing (think Macy’s, Nordstrom, Gap and all of those specialty retailers), home furnishings (think Williams-Sonoma and Crate & Barrel), building materials (think Home Depot, Lowe’s) and electronics and appliance stores (think Best Buy and Fry’s) the undercounting of online retail sales is orders of magnitude off – in the hundreds of percent.
For general merchandise, a conservative estimate is that the real amount of online sales by physical retailers is 23 times higher than what the Census reports. For electronic and appliance stores, the real amount of online sales by physical retailers is almost 14 times more.
BUT DON’T WE SORT OF ALREADY KNOW THIS?
So, you might ask, why does any of this matter? Everyone already knows that eCommerce is cutting into physical retail sales – what’s the big newsflash? Does it really matter that the Census was off by a third?
That depends on whether you’re the CEO of a massive physical retailer who might have wanted to know six years ago (or more) that not only was the growth of eCommerce accelerating – which was well-known – but that the base upon which it was growing was a third larger than she thought.
Maybe she might have wanted to know that so that she could have reprioritized her digital initiatives – and moved them closer to the top of the list.
You see, if she’s looking at the Census numbers for her peers, and knows her own numbers, she’s probably thinking one of two things: she’s doing better than anyone else so there’s no real hurry to do more, and everyone’s in the same place so there’s no real threat. Both conclusions would be wrong, now with the benefit of 20/20 data hindsight.
Maybe she might have embraced mobile wallets and cloud-based point of sale solutions a few years earlier. Who knows, maybe we would be a whole lot further down the mobile/digital wallet field by now.
Maybe she would have adjusted her merchandising and pricing and loyalty strategies to get consumers tied closer to her store using the digital shopping media that her consumers clearly preferred and were using more often than she thought.
Maybe she would have known a little earlier where Amazon was cleaning her clock and had the time adjust her strategy.
And then there’s the Board.
My guess is that many CEOs of physical retailers, probably echoing what their management consultants and execs were feeding them in their perfectly crafted and formatted decks, have been telling their boards and investors not to worry. “Online is just a drop in the bucket.” “People love shopping in physical stores.” “We’ve got plenty of time to adjust to online; after all, 94 percent of physical retail still happens in physical stores!”
Wrong, wrong, wrong.
And that brings us to retail’s “Kodak Moment.”
INSIDE RETAIL’S BIG DATA MISTAKE
Yes, I’m sure you’re curious about how in the world this could have happened and what makes the MPD team feel confident about the missing Census data. The authors are releasing the technical details of their work in a couple of days — geeks who want to know the details, stay tuned at PYMNTS.com. But if you can’t wait, here’s my best non-economist summary of what they did and the crux of the error at a high level.
The Census Bureau appears to count sales from pure-play etailers just fine. But that’s not the issue, nor the problem.
There are three contributors to the bad data problem at Census.
First, things get hairy — and wrong — when it gets down to counting online sales from physical retailers, which is now just about everyone.
Omnichannel is in full swing as most retailers, even some of the luxury brand holdouts, recognize the importance of having a synergistic online and physical retail presence.
As I mentioned, the Census Bureau relies on data that retailers report to them. MPD examined physical retailers at the 3-digit NAICS Industry code (using the most recent complete data set, which was for 2013). That resulted in the discovery of the undercounting error. Walmart’s more than $6 billion for 2013 was just a tad more than the $88 million reported by Census for general merchandisers, which is where Walmart should have been. A bit more digging and some emails with the Census Bureau pretty much nailed the fact that Walmart.com was missing.
Now, according to Evans, the Census can’t actually say anyone is missing or they’d get their heads handed to them. But everything his team looked at, and the feedback from the Census, made it pretty clear Walmart.com wasn’t anywhere in the Census online data. When they finished their digging and added in other missing physical retailers they found that the Census had missed about $62 billion in online sales in the U.S. in 2013.
The second source of retail’s big data mistake is that the Census isn’t capturing sales of big groups of nontraditional retailers like manufacturers who sell online, like Apple or Nike, in the retail numbers it reports.
I know, hard to believe.
But that turned out to be a big deal, too. That segment alone – retailers like Under Armour, Ralph Lauren, Apple, Kate Spade, Lululemon and many others — accounted for roughly $22 billion in 2013, and a projected $25 billion and $29 billion in 2014 and 2015. Yet all are completely missing in how the Census tabulates things.
There’s a third contributor to retail’s big data problem.
Most researchers, data analysts, and media who rely on the Census data use the average online sales as a percent of total retail sales across all retailers. That’s where the “online is still very tiny” conclusion has come from.
A lot of times the “average” isn’t a very good number to base decisions on. The average annual temperature in Boston is 58.7 degrees Fahrenheit. Last Saturday afternoon, when the Patriots won the AFC East Championship Title here, it was 37 degrees Fahrenheit. So, a fan in the stands dressing for 58.7 degrees would have been pretty cold (happy, but still cold). Generally, dressing for 58.7 degrees is a bad idea in Boston since it’s hardly ever 58.7 degrees. It can be a lot colder, like Saturday’s 37 and last year’s sub-zero temps, and a lot hotter, like over 100 degrees.
Further, reporting an average physical/online break fails to show the impact of online sales growth by retail category – which is important for understanding what sectors will feel the online hit most acutely, and how soon that impact will be felt.
The bottom line? When the Census reports that 94 percent of all retail sales still happen in brick and mortar locations, everyone feels better. When that number is really 89.7 percent now, the storyline turns sour. And for retailers sitting in a category that is a lot lower than the “average,” it’s downright scary.
WHY THIS MATTERS
Now before you start sending hate mail to the Census Bureau, please don’t blame them.
These folks are understaffed and under-resourced, and can only report based on what they’re given. They also operate big, inflexible government databases that can’t account for the differences and nuances of our changing retail environment. Part of it is they are stuck using outdated NAICS codes that are based on treaties the U.S. has signed with other countries. Let’s not go there right now either.
It’s pretty shocking, though, that a government entity tasked with reporting such important information for the largest economy in the world, now some 20 years after the birth of the Internet and eCommerce, isn’t given the resources to do it properly.
But thank goodness we spent $856,000 last year to find out that it takes 3 months to teach a mountain lion to run on a treadmill.
Of course, as the blurring of the online and offline worlds accelerates, accounting for online and physical retail sales will only get harder and hairier. Buy online and pick up in-store may be great for retailers and a sign that omnicommerce is in full swing, but Census Data isn’t set up to count those sales correctly.
And retail will just keep feeling better that physical retail is still such a large part of the retail economy. Yet retailers know instinctively that they must embrace digital and step up their online and omnicommerce games since that’s where the consumer is taking them.
They’re also starting to internalize the hit they take when they don’t.
Our Checkout Conversion Index – a collaboration with BlueSnap – shows that most merchants today fail the most basic of all online tests: how easy it is for consumers to check out on their sites.
When we benchmarked 650 sites in the U.S. – representing about 75 percent of U.S. eCommerce sales – we found that there was so much friction across the board, that most retailers were putting as much as 36 percent of their sales at risk. Of course, those sales aren’t lost forever, but simply lost to merchants who can’t convert those shoppers to buyers to those who can.
Like Amazon, for example.
SOLVING RETAIL’S BIG DATA PROBLEM
Now that we’ve discovered this mistake, we’re going to share what we know on a regular basis. Coming soon, we’ll be publishing the “Whole Scoop And Nothing But The Scoop On Online/Offline Retail Sales Tracker” so that you have monthly updates on what’s really going on at the intersection of online and offline retail.
We’re doing to give you averages, of course, but the more valuable data by three-digit NAICS code.
What you do with that data, is your call.
Consider it our contribution to turning retail’s “Kodak Moment” into a picture truly worth framing. And a memory worth remembering – for all of the right reasons.
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