#DigitalSkeptic: E-Retailers Hit a Bricks-and-Mortar Wall

NEW YORK ( TheStreet) -- All investors need to do in this winter of retail sales discontent to see the illusion that selling on the Web is cheaper, faster and more lucrative than selling in a real store, is, you know ... look.

It seems coal is about all online and in-store retailers can expect for the holidays. For the first time in a decade, Thanksgiving and the ever-critical Black Friday/Cyber Monday retail shopping duality come at the latest possible weekend in the calendar year. That means that -- even though for first time in years there are legitimate must-buys such as the Microsoft XBox One and Sony Playstation 4, a chill is coming to retailing this holiday.

"Faced with continued economic uncertainty and used to doing more with less, consumers will take a conservative approach to spending this holiday season," said the National Retail Federation's survey on shopping sentiment for 2013 in October.

Even more surprising is how big retailers aren't even bothering being coy about the coming gloom. Of many announcing bad news, bellwether retailer Wal-Mart ( WMT) flat-out told investors this month that it expected yet another declining quarter, the third in a row over the past year.

"Wal-Mart U.S. comp sales declined 0.3% in the 13-week period ended Oct. 25," summed up the company in its quarterly statement last week.

But in one strangest quirks of any market I cover, Wal-Mart releases its annual statements -- the only financial documents really worth paying attention to -- for 2013, in 2013!

That's right, investors, to get the full picture of how bricks-and-mortar selling is working in the post-Information Economy Age, head over to Wal-Mart's robust, flashy and -- dare I say it for financial statements -- easy-to-use online mini site, which presents the argument for the company in the marketplace.

Spend even a few minutes browsing the aisles of the online investor resource for this $469 billion retailer behemoth and even the tightest-jeans-wearing Web hipster will realize that a pure play online retail will never, ever match the tried-and-true big box store in terms of sales, operating margins and profit margins.

Or really any other metric that matters in valuing a business.

Bricks and mortar is more efficient. Duh!
To feel the sheer, raw business power of selling so much stuff under one roof, just start with the five-year financial summary Wal-Mart posts online.

Sure, total revenues grow only somewhere in 4% to 5% range, a fraction of the 25% bumps that Web outfits such as Amazon ( AMZN) brag about. But here in investor world, revenue, free cash and EBIT valuations are cute. But what really drives the extended bull market is pure profit: what you keep from every dollar for a sale after taking out all the costs of making that sale.

And from this operational, net earnings perspective, Web retailing is not even in Wal-Mart's parking lot.

Let's start the gross profit margins: Wal-Mart's margins hold steady in the 25% range from 2009 all the way to 2013. Total assets, similarly, grow year in and year out at about 5%. And most of all, the net margins -- profit -- run the 3% range. Love or hate its politics and labor policies, Wal-Mart is a real business that makes real money.

Then try to compare that with any pure-play Web retailer and let me know how it works out for you.

First off, what you'll find is that 15 years into the so-called Web revolution, Amazon is about the only Web retailer left telling its story to investors. Niche retailers such as Buy.com got gobbled up by Asian retailer Rakuten. And it's not like international Web sellers such as Alibaba disclose. And I for one am very skeptical about how much of eBay's ( EBAY) solid operating story really comes from its growing retail side. To me its social exchange and PayPal transfer business that's moving that needle.

For better or worse, Amazon's numbers are the best story the Web can tell.

And frankly, it's a tale of woe.

Amazon is a business that will cheer when it sells even 30% of what Wal-Mart does. And operationally, have operating margins ever gone above 10% in the past half decade? Geez, last year, unless I screwed up subtracting $60.4 billion in operating expenses from $61.1 billion in total sales, you're looking at less than a penny on the dollar left over -- even before the fixed costs of doing business are taken out. Where does all the money go?

It's insane.

The Web's lost dollars
Even more bizarre, if you look at the culture that Wal-Mart projects in its statements, I get the feeling it is not even trying to compete with the Web. Ever been down to a store? Ever talk to a sales associate? Everyone is trying hard, but "high tech," Wal-Mart is not. Imagine the money that could be made if it installed an in-store system that did the shopping for you.

But Wal-Mart knows the real score in retail: In terms of investor value, dollars flowing to the Web are lost dollars. And there is a good reason Jeff Bezos sold 1 million shares in his company this year: Pure-play Web retailing is, at best, a niche business.

It's a shopping aisle investors would be smart to stay out of.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.