Ten years after its inception, online retailing is growing up fast. According to The State of Retailing Online 8.0, an annual Shop.org study conducted by Forrester Research (Nasdaq: FORR) of 137 retailers, 2004 online sales rose 23.8 percent to $141.4 billion. Excluding travel, online retail sales also rose 23.8 percent to $89.0 billion, representing 4.6 percent of total retail sales.*
The report predicts that online sales (including travel) will rise 22.0 percent to $172.4 billion this year. Sales excluding travel are expected to reach $109.6 billion.
Women’s Retail Categories Poised For Growth
Several retail categories will experience steep growth this year, largely due to the growing acceptance of online shopping by women. In fact, categories with products purchased largely by women will see the most growth this year. Online sales of cosmetics and fragrances are expected to grow 33 percent while sales of over-the-counter medications and personal care will rise 32 percent. Additionally, sales of jewelry and luxury goods (31 percent) and flowers, cards, and gifts (30 percent) are expected to rise dramatically.
“Though initially adopted by men as a shopping tool, women are flocking to the Internet in droves to comparison-shop, research, and buy,” said Scott Silverman, Executive Director of Shop.org. “Online retailers who sell products that are purchased by women are in a favorable position this year, as we expect those categories to grow substantially.”
In addition, several categories are expected to receive at least 10 percent of their sector’s sales from the Internet this year, including: computer hardware and software (48 percent); tickets (28 percent); travel (26 percent); books (20 percent); consumer electronics (13 percent); cosmetics and fragrances (12 percent); toys and video games (12 percent); and flowers, cards, and gifts (10 percent). This year, a total of 13 categories will reach the 5-percent penetration point.
Profitability Continues To Climb
Multichannel retailers again posted record profitability in 2004. Last year, online retailers improved overall operating margins to 28 percent from 21 percent in 2003. Catalog-based retailers continue to boast the best operating margins, which rose to 32 percent last year from 28 percent in 2003.
“With profitability behind them, retailers can now focus on innovation and growth through things like increased integration of their online and offline businesses and internationalization of their sites,” said Carrie A. Johnson, lead author of the report and principal analyst at Forrester Research. “One way retailers will grow sales over the next several years will be by launching country-specific sites and operations to accommodate a growing number of international customers.”
Online Retailers Find Search Engine Marketing Pays Off
One of the most compelling findings of the study addressed retailers’ marketing budgets and the effectiveness in marketing through certain channels. This year, search engine marketing appeared as the clear leader as a source of new customers, with retailers reporting that search engine marketing delivered 43 percent of overall customers to their sites. In 2004, 87 percent of retailers who participated in the study used pay-for-performance search placement and spent more than twice as much from their marketing budgets on this category than they did in 2003 ($877,630 in 2004 versus $399,923 in 2003).
Multichannel Retailing Advances
According to the study, retailers are keenly aware of the importance that their Web site plays into their overall sales goals. In fact, retailers reported that the Web influenced 20 percent of in-store sales. As a result, retailers are striving to integrate their stores and Web sites, which signals cooperation among channels.
Last year, almost all (92%) multichannel retailers included URLs on in-store materials, up from just 77 percent in 2003. The majority of retailers (81%) also used Web sites to tout their stores. Additionally, 45 percent allowed consumers to purchase and redeem gift cards online and in stores, up from 30 percent in 2003. And nearly one-fourth (24%) of retailers offered in-store product availability on their Web sites last year.
About The State Of Retailing Online 8.0
The State of Retailing Online 8.0 is a detailed survey that is based on information from 137 retailers that shared their confidential data. It explores the opportunities and challenges facing retailers selling and marketing on the Web, including store-based, catalog-based, and Web-only retailers.
* “Retail Sales” exclude travel and include the following categories: sporting goods and equipment; flowers, cards, and gifts; health and beauty; consumer electronics; other (subscriptions, art, and collectibles); apparel; jewelry and luxury goods; home; food and beverage; books; tickets; computer hardware and software; music and video; toys and video games; auctions; and auto and auto parts. These are not the same categories that the National Retail Federation tracks; therefore, the numbers are not comparable.