Retail Evolving; Web-Based is Small But Growing Portion

The retail industry has been on a roller coaster ride over the past 25 years with a slightly negative trend line as shown in Figure 1. The housing bubble created tremendous demand for household furnishings and goods, which then plummeted with the Great Recession that caused shuttering of a handful of furniture stores and car lots in Twin Falls. Small retail businesses throughout south central Idaho suffered from the economic downturn ending in fewer local retail outlets available in rural areas.

In the eight years since then, Twin Falls and the Burley area have experienced heightened retail development welcoming new national retailers like Dick’s Sporting Goods, Bed, Bath and Beyond, Petco and restaurants. These hubs serve the surrounding rural and sometimes isolated areas. But there are other retailing opportunities serving these rural and urban areas such as the internet.

Web-based retail has been a boon for those isolated areas that will never have a brick and mortar big box retailer to service its smaller population base. These rural populations can access products at volume savings thanks to the internet. Even better, if the purchase is sufficiently high, these goods are delivered at zero-cost and limited effort to the consumer. This is even more efficient than the Sears catalog that characterized Americana as early as 1894. Now, the diversity of products available to order has no limits, and drones are being developed to deliver them to our doorways.

With recent reports of department store losses across the country and in Idaho, internet retailers have been the target of criticism and blame for these closures, but the data doesn’t support that theory. According to the U.S .Census Bureau, unadjusted e-commerce sales accounted for 8.2 percent of total retail sales nationally for the second quarter of 2017.  The last seasonal peak was 9.5 percent for the third quarter of 2016, Figure 2. The majority of sales, about 90 percent, market their product to consumers that appreciate seeing, touching, hearing, tasting or smelling before finalizing the deal. Limits of internet infrastructure in pockets of the nation may also hold back e-commerce from absorbing a majority of retail sales.

Younger consumers tend to make internet purchases more than older consumers based on information released by E-Marketer, an industry marketing resource. Forty percent of millennial males, defined as the group 18-34 years of age, would make 100 percent of their purchases online if they could versus 33 percent of millennial females. When looking at an older category, males aged 35-64, the percentage of those who would purchase 100 percent of their purchases online drops down to 29 percent versus 26 percent of females in the older age category. Millennials cite enjoying the internet shopping experience mainly because of the value derived from comparing prices and finding bargains.

One way to measure online retail is to use taxonomy or a combination of standard industry codes as a proxy for web-based or e-commerce to allow for job and establishment comparisons. The three industry codes include: 1) non-store retailers; 2) couriers and messengers; and 3)  warehousing and storage. The proxy for physical or brick and mortar stores includes these three industry codes: 1) clothing and clothing accessories stores; 2) sporting goods, hobby, book and music stores; and 3) general merchandise stores. The physical stores have more establishments and higher employment than the web-based entities. However, the growth rate of web-based retail has surpassed the physical stores over the past 25 years.

The traditional industry codes for retail and its growth are broken out regionally in Figure 4, which validates the idea that retail follows rooftops. The northern and the southwestern regions of the state have experienced high population growth correlating with the highest retail employment growth over the past 25 years. The state overall and eastern Idaho show similar growth at 60 percent over the past 25 years–almost doubling that of south central Idaho and three times greater than southeastern Idaho, both areas that have experienced slower growth than the population-dense areas already mentioned. North central Idaho continues to be in a slow-growth holding pattern due in part to its lack of proximity to major thoroughfares. It has one foot aligned with natural resources while the other foot aligns with the ammunition and recreation sectors, both of which can fluctuate.

The good news is that department store closures like Macy’s in Twin Falls are not negatively impacting retail in Idaho as much as one would anticipate based on reports. This is thanks in large part to hubs of retail throughout the state and access to myriad retailing outlets over the web. The employment growth in online retail allows even the small crafts person to participate in the economy using sites such as Etsy and Pinterest.

Jan.Roeser@labor.idaho.gov, regional economist
Idaho Department of Labor
(208) 735-2500 ext 3639