This holiday season could mark a tipping point in the shift from brick and mortar to online shopping, said Andreessen Horowitz partner Jeff Jordan.
"You look at the early reports on the holiday, online's incredibly bullish, physical retail's incredibly bearish," said Jordan. "UPS is getting crushed under the surge of online orders."
Jordan highlighted a board meeting he attended with Marc Andreessen, general partner of the firm he co-founded, right after Black Friday as indicative of the trend. The company, which sells an electronics product, had expected the vast majority of its sales to come through physical stores, but found that almost half of its sales came from online.
"They built up this large apparatus to sell into these channels, to get the inventory there, to try to sell it through, and it turns out they should have just kept it in the warehouse and sold it online through their own website and Amazon," said Jordan. He declined to name the company.
"Marc and I were at the board meeting and we go like, 'Oh, s---, it's happening,' " he said.
At the same, the effects of Amazon's e-commerce dominance are rippling across the Internet, said Jordan. Margins are incredibly thin, and showrooming is now happening online as well as in physical retail stores, with consumers becoming extremely savvy when it comes to sourcing the best deals. Anything with a Universal Product Code number is subject to Amazon's fierce pricing.
"It is hard to underestimate how dominant they are in the categories [in] which they trade," said Jordan who feels particularly competitive with Amazon, having spent years as an executive at eBay. "Anyone who sells what Amazon sells is feeling enormous pressure because, you know, directly comparable, incredibly aggressive on prices, and you know, increasingly amazing convenience."
Online retailers offering unique products, such as online marketplace Etsy, eyewear company Warby Parker and beauty brand Julep — which Andreessen is invested in — are best equipped to compete for eCommerce dollars, said Jordan. "That's who we think is best positioned to try to compete with Amazon, because Amazon not only is hurting all the offline retailers, they're hurting all the online retailers."
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With so many fixed costs, said Jordan, physical retail stores are feeling the most pain. "People who sell specialty retail to youth are getting just slugged really hard, department stores are getting hammered," he said. "These are the same trends that are happening, they just are getting to this scale where it's just impossible to ignore them."
In an effort to lure shoppers away from screens and into retail stores, malls are investing in "experiential shopping," with the number of restaurants and other services exploding. "People still like experiences," said Jordan. "The bull case for what malls become, as retailers go bankrupt is, you know, they need to become much more experiential."
"Even really high-end malls — I mean, the Stanford Mall right here [in Palo Alto, California], the Century City Mall [in Los Angeles] — the tenant mix is changing dramatically away from traditional retailer," he said.
EMarketer projects U.S. e-commerce sales will increase 9 percent this year, and account for $79 billion out of a total $886 billion in U.S. consumer spending. Early data from MasterCard suggests eCommerce sales could be even bigger.
In a Dec. 2 report following Black Friday, MasterCard SpendingPlus looked at U.S. retail sales trends for credit cards, cash and checks and reported total U.S. retail sales growth of 4.6 percent year over year, with online spending up double digits. "E-commerce was HUGE. While still a minority share of overall sales, e-commerce sales grew nearly 16 percent in November — up from high-single digit growth for the past 12 months. Over the traditional four-day Thanksgiving weekend, we saw e-commerce up more than 13 percent," SpendingPlus reported.
(Despite that growth, a study by Adobe Digital Index expects online sales growth to slow slightly in the 2015 holiday season, compared to 2014.)
"The big surprise to me has been the huge jump in e-commerce, as we know that many consumers prefer the customer service at brick and mortar stores. Is this the beginning of a bigger e-commerce trend or a holiday blip? The holidays typically attract more online sales than the rest of the year, so it will be interesting to see," Sarah Quinlan, the senior vice president of market insights for MasterCard Advisors, stated in a press release.