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Sunday, January 26, 2014

Online Sales: Breaking the Egg

Was the 2013 holiday season really a turning point in terms of online purchases? Can a business environment change so drastically from one Christmas to the next? If not, what can we say about a commercial system that buckles, at least at its weakest link, under the pressure of a moderate change in buying habits? Put another way, does such buckling necessarily indicate or point to the existence of a threshold point that has suddenly and unexpectedly been crossed? Alternatively, the system itself may be weak.

During the November-December holiday season of 2004, online sales revenue in the U.S. increased 25 percent from the year before.[1] CNN Money reported the increase as 29.5 percent—almost a third of total holiday sales.[2] This healthy numbers can be deceiving, however, if the base is low relative to the total. That is, if the online holiday sales figure as a percentage of total holiday sales is around 2 percent, an increase of 25 percent from the prior year’s online sales is immaterial in terms of the change in the percent of online sales to total from the prior to the current year. As shown below, fourth quarter percentages-of-total (rather than of increase) increased from roughly 1.7 in 2003 to 2 percent in 2004. This change is hardly earth-shattering.

Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales
4th Quarter 1999 to 4th Quarter 2004[3]

So let’s look at percentage-of-total figures specifically for the combined (November and December) season of Thanksgiving and Christmas, two of the major national holidays in the United States. In 2012, the season’s online sales revenue accounted for 19.3 percent of the total retail sales.[4] Keeping in mind the magnitude of the changes shown in the graph above (0.6% to 2.2% over five years), the change from roughly 20 to 25 percent in 2013—from just one Christmas to the next—seems relatively dramatic. Yet a shift from 20 to 25 does not in itself seem very significant. Even so, it was enough for journalists to label it a “sea-change,” “threshold,” “turning point, “and “major re-alignment, capable of unleashing a virtual tsunami.

One business practitioner interviewed on CNBC in mid-January, 2014 made the startling claim that the turning point had come quite unexpectedly in just one year. I contend that conclusion is overly dramatic, though I readily concede that the five-point difference was oddly too much for a part of the system. Specifically, “an unpredictably large number of packages overwhelmed UPS,” with thousands of Christmas presents left undelivered by Christmas Eve.[5] Natalie Godwin, a spokesperson at UPS, explained. “The volume of air packages in our system exceeded the capacity of our network, as demand was much greater than the forecast.”[6] The network’s capacity itself became transparent as a constraint, as a result of demand having been much greater than anticipated. The words “capacity” and “much” point to, or intimate, a systems-level problem not just for the package-delivery company, but also for the U.S. (and perhaps global) system of commerce.

Crucially, that a percentage change of just 5 percent of total sales revenue represented as increased demand can pierce the capacity of a major link in the commercial chain from manufacturers to customers suggests not a pivotal year, but, rather, a system too (i.e., artificially) inflexible or hard. Rather than being able to adapt to changes in the environment, as any fit species does through the evolutionary process of natural selection, the American system of commerce lacks the built-in ability to stretch (and contract). By implication, reaching a threshold point, such as in demand for products sold online, is in terms of the system and behaves as a wall rather than a semi-permeable membrane. It is worth pointing out that a threshold point concerning the system of commerce also no doubt exists in terms of society (i.e., changes in daily life) and even in terms of products (i.e., transformative products as mainstays as a result of ecommerce). Just as the loud kids tend to get disproportionate attention, a rigid and complacent system gets noticed (i.e., becomes transparent as a system) more than its share. Relying on such a system warrants the warning: Watch out for the “big one”—a major earthquake of sorts capable of a truly dramatic land-shift.
1. Jennifer LeClaire, “Online Holiday Shopping Soars 25 Percent to $23 Billion,” E-Commerce Times, 4 January 2014.
2. CNN Money, “Holiday Online Sales Surge,” 5 January 2004.
3. US Census Bureau, The Department of Commerce, “Quarterly Retail E-Commerce Sales 4th Quarter 2004.”
5. Donna Leger, “UPS System Overload Delays Holiday Packages,” USA Today, 24 December 2013.
6. Ibid.