the rise of e-commerce retail sales and its impact on the ... · • e-commerce sales have grown at...

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Global Economics & Country Risk Conference

The rise of e-commerce retail sales and its impact on the global supply chain18 October, 2017

Economics and Country Risk

Chris G. Christopher, Jr., PhD, CBE, Executive Director - US Macro & Global Economics, +1 781 301-9113, [email protected]

Ibrahiim Bayaan, Senior Economist, UPS, +1 404 828-6476, [email protected]

Jeff McDonald, Executive Vice President, NNR Global Logistics, +1 630 254-3200, [email protected]


The US, Western European, and Chinese consumer: clicks outpacing the bricks

Global Economics & Country Risk Conference / October 2017

100

Chris G. Christopher, Jr., PhD, CBE, Executive Director - US Macro & Global Consumer Economics +1 781 301-9113, [email protected]


Forces affecting US consumer markets

Positive forces• Employment growth

• Real wage growth

• Rising asset values

• Expansion of e-commerce

Negative forces• High student debt burdens

• Saving for retirement

• Asset and income inequality

• Store closings


101


US real median household income made strides in 2015 and 2016

102

40

45

50

55

60

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Thou

sand

s of

201

6 do

llars

Real median household income

© 2017 IHS MarkitSource: IHS Markit



-10

-5

0

5

10

15

Lowest quintile Second quintile Third quintile Fourth quintile Highest quintile Top 5 percent

Per

cent

cha

nge,

201

6 do

llars

2008-13 2008-14 2008-15 2008-16

US incomes pushed past prerecession levels for most households in 2016

Real mean household income by quintile

103




US poverty rate pushed lower in 2015 and 2016

104

10

11

12

13

14

15

16

1984 1988 1992 1996 2000 2004 2008 2012 2016

Per

cent

Percent of population below poverty level




US consumer sentiment is upbeat, supported by improving household finances

50

60

70

80

90

100

110

120

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

1966

= 1

00

University of Michigan Index of Consumer Sentiment

Source: University of Michigan, IHS Markit

105

© 2017 IHS Markit



US consumer sentiment by household income

50

60

70

80

90

100

110

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Income < $75,000 Income > $75,000

Consumer sentiment by household income

Source: University of Michigan, IHS Markit © 2017 IHS Markit

1966

= 1

00

106



US e-commerce share of retail trade jumps in second quarter

6.2 6.3 6.5 6.6 6.9 7.1 7.3 7.5 7.8 8.0 8.2 8.2 8.5 8.9

0

2

4

6

8

10

2014 2015 2016 2017

E-commerce share of total retail sales less restaurants

E-commerce share of retail sales jumps in second quarter


Per

cent

E-commerce share of retail sales jumps in second quarterE-commerce share of retail sales jumps in second quarterE-commerce share of retail tradeE-commerce share of retail trade

107



US e-commerce takes a bigger bite out of retail sales

11.6 11.8 12.1 12.2 12.6 13.0 13.3 13.5 13.9 14.3 14.8 15.0 15.5 16.0

0

3

6

9

12

15

18

2014 2015 2016 2017

E-commerce share of total retail sales less restaurants,food and beverage stores, auto dealers, and gas stations

E-commerce share of retail sales jumps in second quarter


Per

cent

E-commerce share of retail sales jumps in second quarterE-commerce share of retail sales jumps in second quarterE-commerce share of retail sales

108



US e-commerce retail share expanding

0

5

10

15

20

2001 2003 2005 2007 2009 2011 2013 2015 2017

Per

cent

E-commerce retail share of total retail sales excluding food, gas, and autos, SA

Source: IHS Markit

109

© 2017 IHS Markit



US 2017 holiday retail sales growth to maintain solid pace

2.7

-4.6

0.2

5.24.6

2.6 2.9

5.0

3.2 3.64.1

-6

-4

-2

0

2

4

6

2007 2009 2011 2013 2015 2017(f)

Holiday retail sales


Per

cent

cha

nge

from

a y

ear e

arlie

r

Notes: NSA November and December total retail sales less auto dealerships, gasoline, and food services

110



US 2017 online holiday retail sales growth to remain brisk

9.6

-3.0

13.812.6

13.6

9.7

5.2

13.4 12.9 12.8 13.1

-6

-3

0

3

6

9

12

15

2007 2009 2011 2013 2015 2017(f)

Online holiday retail sales


Per

cent

cha

nge

from

a y

ear

Notes: NSA November and December electronic shopping and mail order retail sales

111



US online share of holiday retail sales

0

2

4

6

8

10

12

14

16

18

20

1992 1996 2000 2004 2008 2012 2016

E-commerce share of holiday retail sales


Per

cent

age

112



US: Clicks outpacing the bricks

0

10

20

30

40

50

2004 2006 2008 2010 2012 2014 2016

Bill

ions

of d

olla

rs, S

A

Electronic shopping and mail order Department stores

Department and online stores retail sales

113




Western Europe: GDP & consumer spending growth

-5-4-3-2-1012345

2000 2005 2010 2015

Per

cent

cha

nge

Real GDP Real consumer spending

Real GDP and real consumer spending

114




Western Europe: Real consumer spending

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Germany France United Kingdom Italy Spain

Ann

ual p

erce

nt c

hang

e

2015 2016 2017 2018 2019-2023

Real consumer spending

115




0

1

2

3

Netherlands Switzerland Sweden Belgium Norway

Ann

ual p

erce

nt c

hang

e

2015 2016 2017 2018 2019-2023

Western Europe: Real consumer spending

Real consumer spending

116

Source: IHS Markit © 2017 IHS Markit



Western Europe: Younger consumers go online(Percent of individuals with at least one online purchase over the year)

0

20

40

60

80

100

Total 16-24 25-34 35-44 45-54 55-64 65-74

UK

2008 2016

Percent of age group

0

20

40

60

80

100

Total 16-24 25-34 35-44 45-54 55-64 65-74

Norway

2008 2016

Percent of age groupPercent of age group

0

20

40

60

80

100

Total 16-24 25-34 35-44 45-54 55-64 65-74

France

2008 2016


0

20

40

60

80

100

Total 16-24 25-34 35-44 45-54 55-64 65-74

Germany

2008 2016


Source: Eurostat

117



Europe: Poland showing growth, Italy lagging (Percent of individuals with at least one online purchase over the year)

0

20

40

60

80

Total 16-34 25-34 35-44 45-54 55-64 65-74

Poland

2008 2016

Percent of age group

0

20

40

60

80

Total 16-24 25-34 35-44 45-54 55-64 65-74

Spain

2008 2016


0

20

40

60

80

Total 16-24 25-34 35-44 45-54 55-64 65-74

Italy

2008 2016


0

20

40

60

80

Total 16-24 25-34 35-44 45-54 55-64 65-74

Portugal

2008 2016


Source: Eurostat

118



0

2

4

6

8

10

12

14

16

France Germany UK

CA

GR

, Per

cent

Growth of e-commerce in Europe

119

Annualized growth of e-commerce retail sales between 2011 and 2016




China’s economic growth will downshift in the long run

120

0

5

10

15

20

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Per

cent

cha

nge

Real GDP Industrial production

Real GDP and industrial production




China’s online goods share of retail sales is expanding

0

5

10

15

20

25

30

Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Per

cent

Online goods share of retail sales, NSA


121



Ibrahiim Bayaan, Senior Economist, UPS, +1 404 828-6476, [email protected]

US e-commerce and logistics


122


E-commerce has transformed the retail space, with important implications for supply chains and logistics

• E-commerce sales have grown at a rapid pace over the past 15 years, steadily gaining share in the retail space

• The rise of e-commerce has caused significant shifts in retail strategies and in the information available to end consumers

• These shifts have led to changes in traditional supply chains as businesses evolve to address e-commerce demand


123


Traditional supply chains


Imports

Domestic Manufacturers

124




Imports


Rail/Freight

Warehouse

125




Imports


Rail/Freight

Warehouse

Retail StoresSmall Package

126


E-commerce has disrupted traditional supply chains


Final Delivery

Speed

Price Sensitivity

127


Surging e-commerce has driven the rise in B2C transportation


Final Delivery

Speed

Price Sensitivity

• In a traditional retail experience, the final delivery takes place at the retail store location, typically from a warehouse or wholesaler

• These shipments usually occur through commercial small-package shipments, LTL (less than truckload), or TL (truckload) shipments

• E-commerce shipments predominantly end at residential locations via small package, which can be more costly to deliver

128


Rising e-commerce will likely lead to a majority residential market in upcoming years


Small Package Volume – B2B vs B2C

© 2017 IHS MarkitSource: UPS Analytics

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Shar

e of

Mar

ket V

olum

e

Residential Commercial

129


Businesses have increasingly competed on speed to gain advantage in the marketplace


Final Delivery

Speed

Price Sensitivity

• In recent years, e-commerce retailers have put a greater emphasis on speed of delivery

• As a result, retailers have increasingly set up warehouses/fulfillment centers located near major customer bases

• This leads to higher warehousing costs for businesses and shifts in the types of shipments used to transport goods

130


LTL shipments have done well in recent years as firms aim to locate fulfillment centers closer to customers


LTL Market Volume

© 2017 IHS MarkitSource: NPD, UPS Analytics

80

85

90

95

100

105

110

115

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inde

x Va

lue

(201

2=10

0)

LTL Shipments Manufacturing Industrial Production

131


Free-flowing information has made consumers increasingly price sensitive


Final Delivery

Speed

Price Sensitivity

• E-commerce has allowed for rapid price comparisons by consumers, leaving retailers with little pricing power

• Many retailers have to keep both a physical and online presence, putting upward pressure on costs

• Retailers have reduced their physical presence and kept inventories lean, relying on omnichannel solutions for in-store customers

132


Store closings are projected to exceed recession levels


Store Closings

© 2017 IHS MarkitSource: Credit Suisse

0

2000

4000

6000

8000

10000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Num

ber o

f Clo

sing

s

Retail Store Closures

133


Retailers have kept inventories lean as omnichannel strategies have evolved


Real Retail Inventory/Sales Ratio

© 2017 IHS MarkitSource: Bureau of Economic Analysis

1.2

1.3

1.4

1.5

1.6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Inve

ntor

y/Sa

les

Rat

io

Real Retail Inventories

134


Summary

• The rise of e-commerce has placed traditional retailers in a difficult position, intensifying competition as consumers enjoy greater information

• Businesses have been tasked with delivering an e-commerce solution that gets products to consumers quickly at a low price

• In response, retailers have adjusted their supply chains, altering transportation and warehousing demands

• The retail environment continues to evolve, with businesses constantly adjusting their practices to meet changing consumer preferences


135


Jeff McDonald, Executive Vice President, NNR Global Logistics, +1 630 254-3200, [email protected]

What are the drivers of China’s supply chain?


136


Four shifts driving China’s supply chain


137


Four shifts driving China’s supply chain

• Labor costs

• Production methods and location

• Consumer demographics

• Consumption patterns: e-commerce


138


1st Shift: Labor costs

The end of low-cost labor?


139


0

5,000

10,000

15,000

20,000

25,000

30,000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Billi

on re

nmin

bi

Chinese wages and salaries will increase by more than 11 percent in 2017


140

Nominal Chinese wages and salaries



0

4,000

8,000

12,000

16,000

20,000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Billi

on re

al 2

010

renm

inbi

Chinese real wages and salaries will increase by 8 percent in 2017


141

Real Chinese wages and salaries



2nd Shift: Production methods

The end of low-cost labor?

Chinese manufacturerscoming to the US?


142


2nd Shift: Production location


143

This map is not to be used nor cited as evidence in connection with any territorial claim. IHS Markit is impartial and not an authority on international boundaries which might be subject to unresolved claims by multiple jurisdictions.

Go West and Plus 1 APAC


3rd Shift: Consumer demographics

Producer AND consumer


144


0

1

2

3

4

5

6

7

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

USA China Japan Germany UK France

Per

cent

Bill

ion

US

$

2015 Consumption (left axis) 2015-2020 CAGR (right axis)

By 2020, Chinese consumption will have grown by $1.4 trillion – even as GDP growth slows


145

Source: IHS Markit

Private consumption and spending growth from 2015

© 2017 IHS Markit


4.6

6.5

0

1

2

3

4

5

6

7

Emerging-middleand middle class

Upper-middle andupper class

CA

GR

of c

onsu

mpt

ion,

per

cent

, cu

rren

t US

$,20

15-2

020

Three forces of change are creating a two-speed economy in China


146

Note: Emerging-middle and middle class: income quintiles 1-3. Upper-middle and upper class: income quintiles 4-5.Source: IHS Markit

Upward mobility

© 2017 IHS Markit

12.2

8.6

0

2

4

6

8

10

12

14

Ages 18-35 Ages 36+

CA

GR

of c

onsu

mpt

ion,

per

cent

,cu

rren

t ren

min

bi,2

015-

2020

Source: IHS Markit

Generational shift

© 2017 IHS Markit

6.5

31.0

0

5

10

15

20

25

30

35

Off-line Online

CA

GR

of c

onsu

mpt

ion,

per

cent

,cu

rren

t ren

min

bi,2

015-

2020

Source: IHS Markit

Growth of e-commerce

© 2017 IHS Markit


4th Shift: Consumption patterns

Evolution of the Chinese consumer

From EPZ to e-commerce


147


Total Chinese retail sales growth rate is hovering around 10%

0

2

4

6

8

10

12

14

16

18

2012 2013 2014 2015 2016 2017 2018 2019

Year

-on-

year

per

cent

cha

nge

Source: IHS Markit

Total retail sales, NSA

© 2017 IHS Markit


148


Meanwhile, growth of online retail sales of goods is three times stronger

0

5

10

15

20

25

30

35

40

Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Year

-on-

year

per

cent

cha

nge

Online retail sales of physical goods, NSA



149


China’s online goods share of retail sales is expanding

0

5

10

15

20

25

30

Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Per

cent

Online goods share of retail sales, NSA



150


4th Shift: Consumption patterns

More e-commerce sales in one day in China than 1 year in Brazil!

Singles' Day rang up an eye-popping $17.8 billion in sales

82% of 11.11 sales were mobile

27% of purchases were from international brands or merchants

75% of those on the Tmall app are under 35


151

the rise of e-commerce retail sales and its impact on the ... · • e-commerce sales have grown at...

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