In a mostly disappointing year for the retail industry, there appears to be one bright spot: online retail. According to The State of Retailing Online 6.0, a Shop.org annual study conducted by Forrester Research (Nasdaq: FORR) of more than 130 retailers, online retail sales soared to $76 billion in 2002, up 48 percent over the prior year. Shop.org is the online retailing division of the National Retail Federation (NRF).
Profitability Continues To Grow For Retailers Online
In addition to growth in revenue, the latest figures from the study show that US online retailers are continuing their march to profitability. Last year, 70 percent of retailers reported positive operating margins, compared with 56 percent in 2001. Collectively, retailers broke even in sales last year, up from a loss of 6 percent in 2001.
“In a time when the retail industry has been extremely challenged, it is encouraging to see the online channel continue to grow, and even better, start to make money,” said Kate Delhagen, Consumer Markets Research Director, Forrester Research. “Last year was about breaking even, 2003 is about generating profits.”
Online Retail Shows Strong Growth As Future Looks Bright
Online retail sales are expected to grow 26 percent in 2003 to $96 billion, with seven product categories poised for more than 40 percent growth in 2003. According to the study, the continued growth of online shopping was underscored by more product categories reaching double-digit penetration of total retail sales. Last year, 32 percent of computer hardware and software was sold online. Other categories reaching double-digit penetration include tickets for events (17 percent) and books (12 percent). In total, nine categories will exceed 5 percent penetration this year compared with seven categories in 2002.
Online sales are expected to reach 4.5 percent of total retail sales in 2003, up from 3.6 percent in 2002. The study also showed that 40 percent of online customers are completely new to a retailer’s entire business.
“As multichannel retailers continue to fine-tune their online selling and marketing strategies, consumers become more comfortable shopping online with retailers they know and trust,” said Elaine Rubin, Chairman, Shop.org. “It took the catalog industry 100 years to represent 4.7 percent of retail sales. It took online retailers only six years to accomplish the same feat.”
Online Marketing Budgets: Doing More With Less
With tighter marketing budgets, retailers were forced to try to do more with less last year. By shifting budgets away from expensive portal deals to performance-based affiliate marketing and search engine marketing, retailers were able to cut marketing costs almost in half per order placed ($12 to $8), with store-based ($5) and catalog-based ($7) retailers most successful in this endeavor. At $10, Web-based retailers had the highest marketing costs per order, but this is still a big savings compared with previous years.
Retailers Step Up Multichannel Retailing
Retailers are investing in technology to improve the multichannel customer experience. According to the study, most retailers (63 percent) have upgraded inventory management systems to allow for better management of the supply chain. An additional 40 percent offer in-store inventory availability through their Web sites, and 78 percent of retailers offer in-store returns of online purchases.
Nearly all of the multichannel retailers surveyed track customer behavior for their brand. As a result of these efforts, multichannel retailers reported that 46 percent of their online customers also purchase offline, and conversely, 17 percent of their offline customers purchase online. These multichannel customers have proven to be more valuable and loyal to retailers. In addition to direct online sales, these retailers reported that the Web influences 15 percent of their offline sales.
“The growth of the online channel has ushered in a new era in retailing, which makes shopping more accessible to consumers and improves the overall shopping experience,” said Scott Silverman, Executive Director, Shop.org. “Consumers are embracing multichannel retailing, and retailers are enjoying growth and increased loyalty as a result.”
About The State of Retailing Online 6.0
The only detailed survey that is based on information from 130 retailers that shared their confidential data, The State of Retailing Online 6.0 explores the opportunities and challenges facing retailers selling and marketing on the Web, including store-based, catalog-based, and Web-only retailers.
Shop.org is the association for retailers online. It’s where the best retail minds come together to gain the insight, knowledge, and intelligence to make smarter, more informed decisions in the evolving world of the Internet and multichannel retailing. Founded in 1996, Shop.org became a division of the National Retail Federation in January 2001. The association’s membership includes interactive executives from store-based retailers, catalog-based retailers, Web-based retailers, and retail solution providers.