E-Shopping Bubbling While Retail Bums Along

We recently explored the post-recession tsunami of online retail and discovered that e-shopping’s future is anything if not bright. According to a report by Forrester Research, by 2016, not only are 192 million U.S. consumers projected to be be clicking “checkout” (up 15% since 2012), but those 192 million will also be spending an average of 44% more.

But does this mean we should expect traditional retail to flatline? Well, no. As we showed here, the flourishing of specific retail subsectors (e.g., warehouses/supercenters) certainly cheers up total gloom-and-doom predictions.

Nevertheless, traditional retail and e-shopping scream for comparison. Whatever their destiny, they could hardly differ more in size, stability, and growth patterns so far, and so let’s take a look.

A Comparison

Here’s how the two industries break down:

Traditional retail: NAICS 44-45, except for electronic shopping and electronic auctions

E-shopping: electronic shopping (454111) and electronic auctions (454112)

A quick comparison between retail and e-shopping shows two very different stories. Traditional retail, of course, has been around forever with its ups and downs, while e-shopping is still technically a teenager — and like a teen, it’s growing wicked fast.

One thing we notice is the huge discrepancy in jobs between these two industries. Traditional retail, for all its loss, is still 90 times the size of e-shopping, whose growth is not quite as jaw-dropping, perhaps, as it might seem at first. Sure, it’s booming, but then, it’s always easier to top 160% growth when you start out so tiny.

No, the most interesting fact here is not how many jobs e-shopping is adding to the economy, but how many jobs it isn’t. It creates good consumer prices, serves more customers, makes more dough, and has completely changed the way we view products (literally and figuratively). And it does all these things with a smaller workforce.

This trend of online-based business and a smaller, more tech-based workforce is well illustrated by the Kodak vs. Instagram conversation (read more here and here). At its peak, Kodak employed 140,000 while Instagram, at the time that it was purchased by Facebook in April 2012, employed a mere baker’s dozen. In short, the American economy has always been obsessed with efficiency. If we can do more with less, we will, and the internet is apparently accelerating that process.

The Story in the States

Let’s take a closer look at the top states for job growth and decline for both these industries.

Retail jobs have flourished the most in North Dakota (21%), Nevada (15%), Utah (11%), and Arizona (10%). Each of those states, it should be noted, have fast-growing populations and/or economies. The worst decline has taken place in Michigan (15%), Ohio (14%), Rhode Island (13%), and Wisconsin (10%).

For e-shopping, it’s mostly just a question about where it has grown a lot and where it has grown a ton. Only two states have seen an actual decline in jobs. Idaho leads the way crazy 3,370% growth (from 40 to 1,400 jobs), followed by Utah (800%, from 700 to 6,200 jobs), and Indiana (780%, from 670 to 5,900 jobs). The states that have done the least well are Alaska (20%, from 80 down to 60 jobs), South Dakota (3%, from 92 to 89 jobs), Virginia (mere 5% growth, from 2,000 to 2,140 jobs), and New Mexico (11%, from 127 to 141 jobs).

Here’s a complete look at the growth/decline of each industry in all 50 states (plus Washington D.C.), as well as how they rank:

E-Shopping Hot Spots

E-shopping has also developed quite a few hot spots across the nation, and a handful of MSAs have very high job concentrations. Here are the MSAs where e-shopping’s concentration (measured in terms of location quotient, LQ) is highest:

Seattle, home to Amazon.com, stands out for its sheer number of jobs (14,500). So too does San Jose, eBay’s headquarters, with 4,600. These two MSAs are also where most of the earnings are pooled.

We should also note Indianapolis, where job growth since 2009 approaches 4,000 and tops 500%. In fact, e-shopping is Indianapolis’s fastest-growing industry of the past 10 years, climbing 4,500% since 2002. (Indiana, remember, is third in the nation for e-shopping growth: nearly 800%.)

The city with the highest concentration of online retail jobs is Fernley, Nev., home to an Amazon distribution center. Currently the town of 53,000 is 48 times the national average for e-shopping. Moreover, about 6% of the town’s workforce (710 out of 12,800 jobs) are in the e-shopping industry.

However, this isn’t as golden as Fernley was back in 2007, when e-shopping’s concentration was 107 times greater than the national average. During the recession, Fernley lost 30% of its e-shopping jobs, and has yet to recover them.

Galesburg, Ill., has a similar recession story but bounced back quickly. The town of 32,000, with a concentration 12 times that of the national average, has rapidly regained its jobs — and then some — over the past year.

For towns like Fernley and Galesburg, perhaps the lesson is that e-shopping is much less place-bound than traditional retail. All these small towns with high concentrations run a certain risk with e-shopping if the big companies were to move operations elsewhere.

The map and table below show the 2009-2013 job performance of online retail in the towns with the highest job concentrations (containing at least 100 e-shopping jobs). We see both huge gains and huge declines (in terms of % growth):

Conclusion

There’s no doubt we should keep an eye on the exciting growth in e-shopping. Yet we should also be aware that individual online companies do tend, by their very nature, to be smaller and less sturdy than traditional brick-and-mortar stores. They fluctuate rapidly and often drastically, which could be a little unsettling for towns where e-shopping is heavily concentrated.

Gwen Burrow is an editor at EMSI, an Idaho-based economics firm that provides data and analysis to workforce boards, economic development agencies, higher education institutions, and the private sector. Contact her here.