When fellow Forbes contributor Walter Loeb told me he’d read that high-end retailer Neiman Marcus is reporting more than 25 percent of its revenue comes directly from online sales, I said the reporter must’ve garbled the information. That’s such a high percentage of sales it strains credibility. After all, online sales represent approximately 7.2% of total retail sales in the United States (source: Census Bureau, Department of Commerce).
Granted, apparel holds the largest share (according to eMarketer, in 2015 17.2% of total eCommerce sales will be generated by apparel), but 17% of 7% is still a pretty small number. How could it be?
Turns out I was wrong. Retail trade publication Internet Retailer also offered up the 25% number as cited by Neiman’s Chief Operating Officer Don Grimes on the company’s Q4 2015 earnings call. Couple that statistic with an increase in sales at stores open longer than a year of more than 2%, and it gets clear why the retailer is filing for an IPO. Those are some serious increases across the board.
To ground this data in reality, I took a look at Neiman competitor Nordstrom JWN +0.00%, data. It turns out that eCommerce accounts for 19% of that company’s total sales. Compare that with mass merchant retailers Walmart and Target TGT +0.00%. According to Fortune magazine, each generates about 3% of its total sales online. Granted Walmart and Target sell products other than apparel, but the order of magnitude different is somewhat shocking.
For retailers like Nordstrom and Neiman, “omni-channel” has become a reality. While they’re still spending a bundle on great-looking stores, they’ve got to figure out a way to manage their inventory in a new world. After all, you don’t necessarily want to keep safety stock for on-line sales…and you have to seriously consider that you’re likely going to go out of stock on something. The only way to satisfy the customer is to get that inventory from one of your stores.
The art of managing this inventory is the core of the next retail frontier. I knew that. I’ve heard this consistently from retailers and the technology vendors that serve them.
The part that’s surprised me is the retailers who have to traverse that frontier first. Neiman’s on its way, and if it gets omni-channel right, its IPO could be a real barn burner.