Shift from physical to digital retail happening faster than expected -Andreessen Horowitz

By Nicel Jane Avellana

Jan 20, 2014 07:51 AM EST

A profound structural shift is underway from physical to digital retail and Jeff Jordan, a Partner at Andreessen Horowitz said the change is happening faster than what he had originally expected. In his blog, Jordan says the shift is being driven by three factors.

First, he said that online retail presents robust cost advantages compared to its offline peers. He added that it is grabbing a share in various categories because its pricing and choices and more recently, service, are improving. The second is that brick-and-mortar stores possess "high operational leverage" and cannot survive if its top-line revenue drops for an extended time period. The final factor is that online retailers further increase their share gains when physical retailers go bankrupt.

Although the US Census Bureau says e-commerce penetration of total retail sales in the US in 2012 was only pegged at 8%, Jordan writes that this seriously underrates the effect of e-commerce in bigger sectors of the retail environment.

Examining the data from the Census Bureau even further, Jordan says there are two different patterns that govern the penetration of e-commerce in the country. He writes that as far as "Food and Beverage" and "Health and Personal Care" are concerned, data shows that e-commerce penetration is below the total average. These categories are largely dominated by grocery and drug stores and e-commerce so far has only modestly penetrated these markets.

The categories, which include "Clothing and Accessories," "Media, Sporting and Hobby Goods," "Electronic and Appliance Sales," and "Furniture and Home Furnishings" show that e-commerce penetration is happening above the total average. These are considered the domains of traditional specialty retail categories and bought in the malls of the US, he says. In these specialty categories, e-commerce has greatly penetrated so far. Jordan also observes that in this category, the rate of online share gain shows a continuing increase, with all figures going "up and to the right."

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