Understanding How to Evaluate E-Commerce Market Share

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Do you remember a time when we as consumers had to drive to a brick and mortar to buy all the things we needed? Now thanks to Al Gore and our smartphones, we conveniently shop from our sofa, the dentist’s office, the carpool line, or anywhere else with the ease of the internet. The ever-evolving e-commerce world has picked up considerable speed in the last several years with nearly $517 billion dollars spent online with U.S. Merchants in 2018, up 15 percent over the year before. While 15 percent doesn’t seem like much to most, total retail sales only grew 4.1 percent. In addition, e-commerce data reported that more than half of all retail sales growth was a result of those online sales.

This consumer-centric space is driven by customer choice and price. As a company trying to make your mark, how can you better understand your online/e-commerce market share relative to brick and mortar market share? Are you growing your online business fast enough? How do you compare to the competition?  Retailers and manufactures alike must understand, track, and identify changing e-commerce trends to help answer these questions.

The following four questions will help you evaluate e commerce market share, assessing whether you’re investing in the right areas and providing you a guideline for understanding your performance.

Question 1: What is the total Share: E-Commerce Market Share vs Brick and Mortar market share?

When clients ask ‘what’s my market share?’ it’s a loaded question. We need to look at the whole picture. To determine how your company is performing you need to understand how the business is growing both online and in-store. This means measuring or calculating your market share number for both.  The headlines might have us believe that brick and mortar is a thing of the past. But as retailers compete for customers across platforms, the experiences offered by a brick and mortar store remain the “foundation” of retail, and often helps to close the online sale

Question 2: How should you judge your own growth?

We encourage our manufacturing clients to examine online share growth for the last 3-5 years relative to the retailer’s total share. Is the online share in line with overall market share or above or below? How does your organization compare to the online titan …Amazon? With online sales growth at 15 percent from 2017-2018, at what rate is your organization gaining e-commerce market share?

Case Study: Best Buy Making Strides in Consumer Electronics

As an example, let’s look at a real-life scenario. According to data released by TraQline for the 4Q Ending June 2019, Best Buy is the retail leader in market share for US Consumer Electronics (CE) with 22 percent overall share of the category. This share includes total – whether purchased online or in-store. Walmart gives Best Buy a run for their money as they made significant growth overall in market share for the category the last 3 years and working to close the competitive gap between these two CE powerhouse retailers.

Online growth for top Consumer Electronics Retailers

How do both retailers stack up when we look at only the share among those purchasing online?

Best Buy’s significant share growth in online CE products is impressive, but despite that, they are far behind Amazon, who maintains the largest e-commerce market share for CE purchases with 46 percent versus Best Buy’s 11 percent share; Walmart rings in at just under ten percent (Source: TraQline 4QE June 2019).

What do these numbers mean in terms of growth – where were they 5 years ago compared to today’s online space? Overall, CE online shares grew about 900 bps  since 2015 across all key retailers; Amazon grew by 1200 bps in the same time period. While Best Buy doesn’t come close to winning the category online, they did increase their share by 1300  bps, exceeding the average growth for the category (and Amazon’s growth) and ahead of its closest competitor, Walmart, who only grew 1000 bps.

graph displaying e-commerce market shares for Consumer Electronics

The key takeaway:  to better understand the overall performance across retailers regardless of product, we suggest you examine market share for each channel separately. This will give you a better understanding of how your online growth compares against not only your competitors, but also versus changes in entire industry.

Question 3: Are there opportunities for non-traditional online categories?

When evaluating e-commerce market share many people traditionally think only about tech products being online movers and shakers. However, there are many non-traditional categories that have a high online penetration or opportunity for online growth as technology or industry shake ups change the playing field. For example, you would assume automotive tires are a product more likely sold in-store given the nature of the product – size, weight, need for installation, etc. When looking at overall channel data on TraQline, your assumption would be correct: only 8 percent of tires are being sold online. However, consumers’ increased willingness to buy products online has led tires down a new road. In-store sales of tires have experienced a significant decline in two of the last three years while those online purchases had a significant increase in units overall during the same time period.

Case Study: Walmart’s online tire share growth

A deeper dive into the top tire retailer helps illustrate the point. Walmart had the highest overall share last year – 14 percent. If we break down the share by channel, we see Walmart’s tire share grew significantly from 10 percent in June 2015 to 22 percent in June 2019. The retail giant also grew in-store share, but only 400 bps for the same time frame. As online sales increase, how customers get the product is key and certainly can impact the channel of choice. Among those purchasing tires from Walmart nearly three fourths of customers ‘pick it up at the store/some other location’ instead of having it delivered. This makes sense as customers are likely getting the tires installed right at the store. It may seem obvious, but details like these can impact how online share grows and changes. Walmart making the move to sell tires online with in-store pick-up likely helped grow their tire sales overall.

The takeaway: We should not make assumptions on the best channel for the product. Let the data lead you – it might make sense to carry only some products in-store, or online or both. Understanding the change overtime can provide you that landscape as you navigate the e-commerce highway.

Question 4: How do prices impact shopping online versus in-store?

Some might argue that due to the “endless aisle” of both higher- and lower-priced products, shopping online offers more opportunity to spend less. However, that assumption can be misleading. Average Price Paid (APP) provides key insight into differences in online buying behavior that varies by product category. In some cases, examining APP can indicate that consumers are willing to spend more online than at a physical retail store. Understanding the nuances of online pricing can help you ensure that you have the right assortment and that you’re promoting the right products online.

Case Study: Average Price Paid for Tires

For the last 5 years, the APP has been higher among those buying tires online versus in store. In the past year alone, the APP for those buying online averaged $47 more than those buying in-store.

Looking at the consumers who paid the the top 20 percent of prices at Walmart shows that 17 percent purchased at Walmart.com compared to 8 percent purchasing in-store.

That said, each category may behave differently. In the case of CE products, we see the APP was about $38 more when purchasing in-store.

The takeaway: It’s important to understand how much your consumer is willing to pay when shopping in different channels. If you know that consumers are willing to spend a little more when buying online versus in-store, you can highlight and emphasize products that match what the average consumer likes to purchase.

Determining where your products will be positioned best is both an art and a science. Using consumer data to determine where your customer is comfortable shopping and what prices they are willing to pay will help you make decisions about how you sell online. In some cases, as in CE, online sales have become standard, and choosing to not sell online could cost you your target customer. In other cases, as in tires, there are opportunities to grow, but perhaps not all your products need to be represented in the never-ending scroll of a website. Understanding how to evaluate e-commerce market share will help you navigate successfully in the online space. Tools like TraQline will help you evaluate your options and make data-driven decisions.