The Renaissance Of E-Commerce (M)(JWN)(AMZN)(WMT)(TGT)

There are bits of research that say holiday e-commerce sales rose in the double digits over the Thanksgiving weekend and did even better on Monday. E-commerce sales have risen as a total percentage of retail revenue since 1995, the year Amazon.com (NASDAQ:AMZN) was founded. Online sales are about 10% of total retail sales at this point. The rumors that growth was dying in the e-commerce industry began to circulate late last year when it became clear that both internet and bricks-and-mortar holiday sales numbers would drop from 2007. Online holiday buying activity had to keep a better pace than store-based sales for the theory of its bright future to hold. The internet has not changed anything meaningful about the American consumer’s basic buying habits otherwise.

E-commerce made a sudden comeback and it took less than a week. The National Retail Federation reported that retail sales were flat for the four days that begin holiday shopping. Most retail executives said they did not expect any substantial improvement between Black Friday and the end of the year. “Cyber Monday” online sales, however, rose 19.6% according to online research company, Coremetrics. The pendulum has moved quickly back to the point where bricks-and-mortar stores are dying and all shopping will soon be done online. This was the original case on which the value of companies like Amazon.com was based.  Evidence for this premise comes from the retail sales trends of 2009, even if those trends are based only on a hundred hours of results.

Investors took the renaissance of e-commerce to heart and drove the shares of Amazon to an all-time high of $136.08, a story that was widely reported in the press. Amazon has a market value that is higher than Honda (NYSE:HMC) or Disney (NYSE:HMC). That may seem preposterous but it says a great deal about how Wall St. feels about the prospects of car and entertainment companies compared with a firm that makes the Kindle and sells almost every product known to man on its website. Amazon is changing the world now. Honda changed it a few decades ago.

The “death of store shopping” drums will begin to beat again in a few weeks, if they have not already begun to do so. Shares of Macy’s (NYSE:M) fell sharply as Amazon rose. The perception that traditional stores are like Blockbuster (NYSE:BBI) has a growing number of believers. The video rental chain used to dominate VCR and then DVD rentals and sales. Blockbuster’s delivery of DVDs was destroyed by the online models of NetFlix (NASDAQ:NFLX) and internet delivered video from products that include Apple (NASDAQ:AAPL) TV. Physical stores have high fixed costs. The clerks are even fairly expensive. The real estate rent can be financially back-breaking. E-commerce companies do not have those cost issues.

The champions of e-commerce dominance on the one hand and the analysts who believe that physical stores all have a future on the other are both wrong as radical views often are. The retail industry is breaking into two categories, one of “haves” and one of “have nots”. Wal-Mart (NYSE:WMT) may be the largest owner of physical stores in America. Almost all research shows that walmart.com is one of the top two or three online e-commerce sites. Target (NYSE:TGT), Sears (NYSE:SHLD), and Best Buy (NYSE:BBY) also do extremely well in terms of internet traffic. Nordstrom (NYSE:JWN) and other retail brands that do not have a powerful online presence are in real trouble that will likely affect them this year and will become more serious in the holiday seasons to come.

Large retailers that do not have terrific online brands which draw a large number of visitors and a significant amount of online revenue do face the Blockbuster conundrum. The e-commerce space is already crowded with giants like Amazon and Wal-Mart. The online shopping habits of most people are fixed, their cyber-brand loyalty established. It won’t be possible to get a seat near the head of the internet shopping table, even for a huge retailer like Nordstrom.

Internet revenue may be 11% or 12% of overall retail sales in the US this year. That number is growing again. The 2008 shopping season was an aberration. Bricks-and-mortar store closings will accelerate over the next few years, if that is true. An economic recovery may soften the blow a bit, but the trend is inexorable.

Nordstrom has already lost the retail war. It just doesn’t know that.

Douglas A. McIntyre