A Possible Retail Transition In The Making

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

After seeing a 5% move higher last week – behind news of a new grocery segment – shares of Amazon (NASDAQ: AMZN) have traded lower by almost 4% in the first two sessions of this week. These losses have occurred behind news of slowed monthly growth for both it and eBay (NASDAQ: EBAY). While some are calling this decline “temporary weakness,” I think it could be part of something bigger; a transition if you will in consumer choice.

A Look At The Data

ChannelAdvisor is a marketing e-commerce company that checks both volume and sales for a variety of industries in the marketplace, and has been fairly accurate in the past. According to ChannelAdvisor, same-store sales growth declined rather abruptly for both Amazon and eBay in the month of May.

For Amazon, its growth rate fell to 25.8%. If accurate, this would be its lowest growth rate over the last 12 months. In April, Amazon saw its growth at 30.6% year-over-year, indicating a major drop month-over-month.

Ebay’s same-store sales growth declined to just 16% in the month of May. In April, the company saw 20.5% growth, showing a similar decline as Amazon. Furthermore, ChannelAdvisor provides the specifics, showing an 18% decline in auctions and a 16% increase in fixed-price items. Therefore, eBay’s growth actually came from auto (+30%), further showing its lack of performance.

While eBay and Amazon are without question the largest companies in e-commerce, Google has also made a presence in recent months. The large tech company saw its Google Shopping rise just 0.3% in the month of May.

Where Might The Growth Have Gone?

If you look at the monthly sales for these three companies, you might think that retail was weak as a whole in the month of May. ChannelAdvisor indicates a 14-15% growth rate in e-commerce for the month of May, which is below the 20% that we’ve been seeing over the last six months. Yet, total retail growth forecasts remain unchanged.

E-Commerce has exploded in recent years, as prices are often much cheaper than at big box retail stores. Furthermore, e-commerce companies have been able to attract consumers with savings on sales tax – but not anymore.

In the past, regulators have ignored the losses from online sales tax in part because it was such a small piece of the retail market. But now, e-commerce accounts for more than 5% of all retail sales. Thus, with a new bill in place, and many states already requiring sales tax, I think the data from May goes hand-in-hand with what we saw from Best Buy (NYSE: BBY) during its most recent quarter in May.

During Best Buy’s last quarter, the company saw its comparable store sales decline 1.1%. However, the company saw a whopping 16.3% rise in online sales, and specifically mentioned that those gains were mostly from states where online sales tax had been implemented.

The online sales gains from Best Buy during Q1 can be tied to a previous article I wrote entitled “New Bill Set to Level the Playing Field for Best Buy.” In the article, I explain how companies such as Amazon can offer products at a 1-5% discount to Best Buy and have flourished by allowing the consumer to save an additional 4-9% on sales tax. After the Senate voted to approve the sales tax bill I wrote another article entitled, “Thanks to Government, Big Gains Are Brewing for This Retail Stock,” which looked at how Best Buy could benefit from Amazon no longer having a 4-9% advantage in pricing due to sales tax.

One of the more telling statistics from the previous article is that nearly 11% of consumers cross-shop Amazon with Best Buy and an additional 20% “window shop” at Best Buy before purchasing a product at Amazon. My point is now with a level playing field, it is more likely that consumers will buy in-store at Best Buy to obtain their product at the moment; as they are using it. Judging by the data we saw for the month of May, combined with data from Best Buy, I think it’s likely that we are seeing this transition occur.

Final Thoughts

I am a big believer that the sales tax bill and the integration of online sales tax will significantly boost sales for companies such as Best Buy. Unfortunately, we don’t yet know the total performance of retail for the month of May, specifically in electronics. However, I view these trends for large e-commerce companies as telling.

 While the emergence of Best Buy is still speculative at this point, I do think it is a story to monitor closely, and suggest paying close attention to future online sales data and its impact on companies that have seen fundamental loss in recent years due to the lack of online sales tax. Right now, I think we are in the beginning stages of a balance in power within the retail, specifically in electronics, which clearly benefits Best Buy! 

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Brian Nichols is long BBY. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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