General Merchandise Retail: A Shifting Business Paradigm

As general merchandise forms more than a fifth of all retail revenue in the US, developments in this segment set the tone for the rest of the industry. The general merchandise industry has been quickly morphing into an “omnichannel, heavily online influenced” segment with e-commerce sales accounting for more than a third of all general merchandise sales. Besides, the e-commerce general merchandise business is poised to grow by around 15% in the next five years as compared to a growth estimation of 1-2% for the physical store business. [for detailed analysis, please refer to Retail Hive benchmark – general merchandise retailers].

  • The leading traditional retailers are handling the digital onslaught well. Walmart e-commerce business registered a growth of 40% in 2018. Whereas, Target’s e-commerce revenue grew by 35.4% in 2018. This was the fifth year in succession Target’s e-commerce business achieved a greater than 25% growth rate. The growth rates are way higher than the industry average of around 15% signalling a favorable future outcome for incumbents.
  • 2018 was a relatively dull period for online-only general merchandise retailers. Amazon’s e-commerce sales grew by 13.5% in 2018, slightly below the industry average of 15%. Moreover, Amazon’s e-commerce market share dipped to 33.7% in 2018 from 35.1% a year ago. Whereas, eBay which happens to be the second biggest online marketplace in the US, witnessed moderate revenue growth of 3.4% in 2018. 
  • Likelihood of e-commerce arm of traditional businesses dislodging Amazon from its numero uno position is still fairly unlikely. While looking at the aforementioned numbers it’s evident that leading traditional general merchandise retailers have gained momentum. Still, they are a long way away in terms of scale to take on the likes of Amazon. Walmart’s e-commerce business revenue hovered around the $20 billion marks in 2018, whereas, Target crossed $5 billion in net e-commerce sales for the first time. Amazon, on the other hand, generated an estimated $80 billion in e-commerce sales from the US followed by eBay generating $37.5 billion in revenue. All these companies generate a majority of their online revenues from the general merchandise business. Therefore, Walmart and others need to maintain these high growth rates over a decade to pose a serious challenge to challenge Amazon’s hegemony in the general merchandise category. 
  • Besides, Walmart and Target need to dexterously handle their physical (store) baggage. Around 4% of Walmart’s revenue and 7.3% of Target’s revenue came from the online channel in 2018. If we account for the contribution of the online channel to overall retail revenue, it stands between 12% and 15%.  This implies that these retailers are off by 2-3X when it comes to mirroring the overall market paradigm. Changes are already underway to convert this challenge into a potential opportunity by remodelling the physical space (stores) into warehouses, and distribution and pick-up centers. Considering the vast reach of these players (around 90% of the US population live within 10-miles of a Walmart store) the potential opportunity is to challenge Amazon in terms of last mile delivery and fulfilment time.

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