Business

Blame Costco, not Amazon, for the death of your local Sears

By Dee Gill     
November 23, 2015

From: Magazine

Photo by Associated Press.

E-commerce isn’t likely to kill off walk-in stores anytime soon, despite the continued growth of Amazon and other online retailers. Huge brick-and-mortar operations such as Walmart Supercenters and Costco warehouse clubs have been the bigger threat to traditional retail, according to  a study by Ali Hortaçsu of the University of Chicago and Chicago Booth’s Chad Syverson.

Hortaçsu and Syverson tease out the different impacts of e-commerce and big-box stores on department stores and other traditional retail. They find that while e-commerce grew famously fast, superstores and warehouse clubs grew even faster. For example, online behemoth Amazon added $38 billion in US sales between 2000 and 2013; Costco added $50 billion in sales during the same period. Overall, gigantic physical stores still sell 50 percent more annually than all e-commerce together, according to the study. An analysis that includes evidence of the timing and location of the big-box boom suggests that these large physical stores played an even stronger role in the decline of traditional retailing than did online stores.

The authors note that sales growth for the supercenter/warehouse sector since 2007 has fallen somewhat, whereas e-commerce sales have continued to grow steadily. Although the trend signals e-commerce will gain in importance for the sector, the authors suggest that the strength of the big physical stores points to a future for a hybrid format, in which customers can explore potential purchases in a brick-and-mortar setting before purchasing online.

Ali Hortaçsu and Chad Syverson, “The Ongoing Evolution of US Retail: A Format Tug-of-War,” Journal of Economic Perspectives, Fall 2015.

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