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PRICES AND SPENDING

Trends in producer prices between ecommerce and brick-and-mortar retail 

trade establishments

By Lana Borgie

Electronic retailing, or e-commerce, is becoming an increasingly important activity within the U.S. economy. As a 

component of the retail trade index within the Bureau of Labor Statistics Producer Price Index (PPI) program, the 

electronic retailing index measures changes in margins received by retailers who conduct sales transactions 

online.1 (See accompanying box.)

August 2014 | Vol. 3 / No. 18
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MARGIN PRICES IN THE PPI

In contrast to all goods-producing industries and most service-providing industries, establishments engaged in 

wholesale and retail trade purchase goods primarily for direct resale to other businesses and consumers. The PPI 

views wholesalers and retailers as suppliers of distributive services (rather than goods), because little, if any, 

transformation of these goods takes place. This approach implies that the output of a wholesale or retail trade 

establishment is represented by the difference between its selling price of a good and the acquisition price for that 

same item. As a result, for the trade sector the PPI tracks the average changes in gross margins received by 

wholesalers and retailers. Gross margin prices reflect the value added by the establishment for services such as 

marketing, storing, and displaying goods in convenient locations and making the goods easily available for 

customers to purchase. Margin is defined as the price at which a retailer sells a good, less the current acquisition 

price of that same good. For more on margin prices in the PPI, see “Wholesale and retail Producer Price Indexes: 

margin prices,” Beyond the numbers: prices & spending (U.S. Bureau of Labor Statistics, August 2012), https://

www.bls.gov/opub/btn/volume-1/wholesale-and-retail-producer-price-indexes-margin-prices.htm.

In the first quarter of 2004, the incidence of retailers conducting electronic retailing was considered minor, making 

up only 2 percent of total U.S. retail sales. But from 2003 to 2006, electronic retail sales increased an average of 

28 percent annually.2 Then, by the first quarter of 2014, e-commerce grew to about 6 percent of total retail sales in 

the United States. Between 2009 and 2014, e-commerce sales increased at an average annual rate of 16 percent, 

compared with a 5-percent growth rate in total retail sales.3

This Beyond the Numbers article describes the electronic shopping and mail-order houses industry group within 

the North American Industry Classification System (NAICS) and compares the factors affecting changes in margins 

for brick-and-mortar establishments and e-commerce establishments. The article compares changes in margins 

between the two types of establishments for three specific stores: furniture, clothing, and electronics.

E-commerce according to NAICS

In July 2006, the Bureau of Labor Statistics Producer Price Index (PPI) program initiated coverage of the 

 electronic commerce (e-commerce) industry group, which included electronic shopping (NAICS 454111) and 

electronic auctions (NAICS 454112); the data for these industries were added to the existing PPI for mail-order 

houses (NAICS 454113) to form the electronic and mail-order shopping index. In July 2013, the PPI introduced 

indexes for detailed categories of goods within the electronic shopping and mail-order houses industry group 

(NAICS 45411). These new indexes allow for the comparison of changes in margins for certain categories of 

goods between brick-and-mortar and e-commerce retailers.4 The PPIs currently available include the following:

PCU454110454110 Electronic and mail-order shopping

PCU454110454110P Primary services

PCU4541104541101 Electronic and mail-order shopping services

PCU45411045411011 Electronic and mail-order drugs, health aids, and cosmetics

PCU45411045411012 Electronic and mail-order apparel and footwear
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PCU45411045411013 Electronic and mail-order electronic goods, including appliances

PCU45411045411014 Electronic and mail-order home furnishings, hardware, and related goods

PCU45411045411015 Electronic and mail-order services for all other goods

Retail trade PPIs measure changes in margins received by retailers. The output measured is the “provision of the 

marketing functions necessary to allow consumers access to purchase various goods.”5 The PPI quantifies this 

output by tracking the value added by the retailer, measured as the difference between the retail price to the 

consumer and the price paid by the retailer to acquire the good.

Factors affecting traditional stores’ versus online retailers’ 

margins

Among the most apparent factors that may move margins differently for brick-and-mortar stores versus ecommerce retailers are the input costs incurred to resell goods. If the transactions measured by the PPI were the 

retail price of goods to the consumer, as it is in the CPI, then acquisition costs would be considered the main input 

costs to retailers. However, because the PPI measures the services provided between buying and reselling goods 

as the output of retailers, it follows that operating expenses, such as expenses for supplies, rent, wages, and 

marketing, are more relevant to consider as input costs for providing those retailing services. Establishments seek 

to make enough margin revenue to cover their operating expenses, even though they are not directly related to the 

selling and acquisition price of each individual sale. Changes in such costs require retailers to either renegotiate 

with suppliers or adjust their selling prices to cover their expenses in order to remain profitable. Therefore, the 

comparison of fluctuations in these costs between store and nonstore retailers can help explain differences in 

margin PPIs.

One of the factors affecting prices is overhead costs. E-commerce retailers typically maintain lower margins than 

brick-and-mortar stores, in part because they tend to experience lower overhead costs, given that they do not have 

to incur the expenses associated with preserving store appearance for customers. Store retailers require wider 

margins to cover costs for décor and store maintenance. In addition, since 2009, rental expenses for retail

properties have grown 6.5 percent while those for industrial buildings have declined 10.5 percent. The rise in 

commercial rents over time likely influenced stores to increase margins by raising prices, with the aim of covering 

these rising expenses. Stores often justify their higher prices by offering convenience and store experience. 

Shoppers frequently are willing to pay for the convenience of seeing a demonstration of their desired products and 

receiving their purchases immediately, rather than viewing them online and waiting for delivery.6

Compensation of employees is another input cost to consider. In general, changes in wages are gradual and 

seasonal, affecting all types of retailers evenly. However, brick-and-mortar retail stores typically maintain a larger 

number of employees and employees with specialized skills for their in-store services; therefore, wider margins are 

more crucial for these retailers than for e-commerce retailers. In 2011, about a third of all retail stores had more 

than 500 employees, compared with 5 percent of those in the electronic shopping and mail-order houses industry. 

In addition, 87 percent of online establishments had fewer than 20 employees, compared with about 56 percent of 

store retail establishments.7

Marketing costs are an overhead expense that can differ between brick-and-mortar stores and online retailers 

because of different advertising needs. With more visibility to customers, retailers with storefronts in well-
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frequented shopping areas are typically less affected than e-commerce retailers by changes in marketing costs. By 

contrast, online retailers may be more dependent on advertising to direct customers to their “electronic storefront.” 

In 2012, on average, electronic and mail-order shopping retailers spent 3 times that of store retailers on advertising 

and promotions per dollar of sales.8

Last, the number and size of competitors in a market may influence margins. Widespread access to technology in 

the United States makes it relatively easy to enter the e-commerce market, whereas the startup capital and rent 

required to open a brick-and-mortar shop make that more difficult to do. Margins often fall as new competitors 

enter the e-commerce market and retailers compete on selling price in an effort to gain or maintain market share.9

Changes in e-commerce margins versus total retail trade 

margins

In 2012, e-commerce accounted for about 60 percent of sales ($192 billion out of $323 billion) within the electronic 

shopping and mail-order houses industry group, a group that made up more than 7 percent of total U.S. retail 

sales.10 Margins for electronic and mail-order shopping have declined since 2009, whereas those for the retail 

sector overall have risen. As shown in chart 1, the average monthly change in margins for total retail trade was 

+0.153 percent, while the average change in margins for electronic shopping and mail order houses was –0.023 

percent.
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CHART 1

Increasing competition among e-commerce retailers likely contributed to the decrease in the PPI for electronic and 

mail-order shopping by putting downward pressure on selling prices. In addition, e-commerce retailers have been 

trying to gain market share by charging lower prices than store retailers charge. The average number of U.S. 

establishments in the electronic and mail-order shopping industry group increased 31 percent from 2009 to 2013, 

compared with a 0.3-percent decline in the number of store retail establishments.11 In support of this phenomenon, 

the PPI measures of margins for the specific categories of furniture, clothing, and electronics stores also have 

diverged since the publication of detailed electronic and mail-order shopping indexes began in June 2013. (See 

charts 2, 3, and 4.) For each product area, e-commerce margins consistently have moved lower while brick-andmortar margins have expanded.
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CHART 2
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CHART 3
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CHART 4

In sum, margins for the electronic and mail-order shopping industry group have been shrinking, likely because of 

increased competition in the e-commerce market. Brick-and-mortar retailers, by contrast, have broadened their 

margins to cover their rising rent and marketing expenses. Many justify this premium by providing the in-store 

experience and the convenience of immediate accessibility to their goods. As the structure of the industry for 

electronic and mail-order houses continues to mature and change in other ways, additional data will reveal 

whether the current divergent trend in margins between brick-and-mortar stores and e-commerce retailers 

continues.

This Beyond the Numbers summary was prepared by Lana Borgie, economist in the Producer Price Index, Office of Prices and 

Living Conditions, U.S. Bureau of Labor Statistics. Email: borgie.lana@bls.gov, telephone: (202) 691-7719.

Information in this article will be made available upon request to individuals with sensory impairments. Voice phone: (202) 691-5200. 

Federal Relay Service: 1-800-877-8339. This article is in the public domain and may be reproduced without permission.
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RELATED 

ARTICLES

More BLS articles and information related to Production Price Index are available at the following links:

"New wherever-provided services and construction indexes for PPI (August 2009)"

"Wholesale and retail Producer Price Indexes: margin prices (2Q 2012)"

"PPI Industry or Commodity Data: Which Better Suits Your Needs? (2Q 2010)"

NOTES

1 Retail trade indexes were first introduced into the Producer Price Index (PPI) in July 2000. These first retail trade PPIs, for food

stores and new car dealers, were followed by indexes for additional industries, until near-complete coverage of the retail sector was 

reached in January 2004. One area of retail trade that was not initially covered was electronic retailing. This industry was added to the 

PPI in June 2006. (See Producer Price Indexes: additional retail trade indexes in the PPI (U.S. Bureau of Labor Statistics, February 

16, 2012), https://www.bls.gov/ppi/ppiaddretail.htm; and Producer Price Indexes: PPI introduces industries to complete coverage of 

the retail trade sector (U.S. Bureau of Labor Statistics, February 16, 2012), https://www.bls.gov/ppi/ppiretailtrade.htm.)

2 Estimated quarterly U.S. retail sales (not adjusted): total and e-commerce (U.S. Census Bureau, Retail Indicators Branch, May 15, 

2013), https://www.census.gov/retail/mrts/www/data/excel/tsnotadjustedsales.xls.

3 Monthly & annual retail trade (U.S. Census Bureau, May 15, 2014), https://www.census.gov/retail. Data are provided under the 

section titled “Latest quarterly e-commerce report” and were extracted from the Times Series Excel file.

4 It is important to note that PPIs track changes in margins on a percentage basis. PPI data cannot be used to compare differences in 

the absolute size of margins received between store and nonstore retailers.

5 Roslyn Swick, Deanna Bathgate, and Michael Horrigan, “Services Producer Price Indices: past, present, and future,” draft paper 

(U.S. Bureau of Labor Statistics, May 26, 2009; presented at the Federal Economic Statistics Advisory Committee, June 9, 2006), 

https://www.bls.gov/advisory/fesacp1060906.pdf.

6 William L. McComb, “Clicks and mortar: why in-store experience matters (now more than ever),” Forbes, June 11, 2012, http://

www.forbes.com/sites/onmarketing/2012/06/11/clicks-and-mortar-why-in-store-experience-matters-now-more-than-ever/.

7 Statistics of U.S. businesses (U.S. Census Bureau, December 2013), http://www2.census.gov/econ/susb/data/2011/

us_6digitnaics_2011.xls. Data are provided under the section titled “Latest SUSB annual data” and were extracted from the U.S. All 

Industries Excel file. Data on store retailers were calculated by subtracting nonstore retailer subsector data from total retail trade.

8 Monthly & annual retail trade (U.S. Census Bureau, March 31, 2014), https://www.census.gov/retail. Data are provided under the 

section titled “Latest Annual Retail Trade Report” and were extracted from the Detailed Operating Expenses Excel file and Sales 

(1992–2012) Excel file. Data for store retailers were calculated by subtracting nonstore retailer subsector data from total retail trade.

9 Andrew Tonner, “In defense of Amazon,” The Motley Fool, July 25, 2104, http://www.fool.com/investing/general/2014/07/25/indefense-of-amazon.aspx.

10 Monthly & annual retail trade (U.S. Census Bureau, March 31, 2014), https://www.census.gov/retail. Data are provided under the 

section titled “Latest annual Retail trade report” and were extracted from the U.S. Retail Trade Sales—Total and E-commerce Excel 
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file and the U.S. Electronic Shopping and Mail-Order Houses (NAICS 4541)—Total and E-commerce Sales by Merchandise Line 

Excel file.

11 Databases, tables & calculators by subject: Quarterly Census of Employment and Wages (U.S. Bureau of Labor Statistics), https://

data.bls.gov/timeseries/

ENUUS00020545411&series_id=ENUUS00020544-45&series_id=ENUUS000205454&years_option=specific_years&from_year=2009. 

The values presented in this article were downloaded June 18, 2014. Over time, BLS makes revisions to the Quarterly Census of 

Employment and Wages; therefore, final values may differ from those referenced in the article.

SUGGESTED 

CITATION

Lana Borgie, “Trends in producer prices between e-commerce and brick-and-mortar retail trade establishments ,” Beyond the 

Numbers: Prices and Spending, vol. 3, no. 18 (U.S. Bureau of Labor Statistics, August 2014), https://www.bls.gov/opub/btn/volume-3/

trends-in-producer-prices-between-e-commerce-and-brick-and-mortar-retail-trade-establishments.htm