January 19, 2001, 12:00 AM

Bulls Run for E-retailing in New Report

Even as e-retailing struggles to regain favor with Wall Street, online sales will soar 85% with year, according to a new study by the Boston Consulting Group and e-retail trade group Shop.org. The report foresees Internet retailing becoming a $61.1 billion market in 2000, up from $33.1 billion it tallied for 1999. "Online retailing is here to stay," says David Pecaut, senior vice president and global co-leader of the e-commerce practice at Boston Consulting Group.

Though the report finds that 65% of shopping carts are abandoned online, it shows some improvement in the number of browsers who become buyers. The average order conversion rate (orders vs. visits) rose from 1.5% in 1998 to 1.8% in 1999, while the buyer conversion rate (buyers vs. visitors) increased from 2.8% to 3.2% over the same period. Pecaut called these improvements significant steps toward profitability for Web merchants. On that front, 38% of e-retailers overall report they're the black, according to the Boston Consulting Group and Shop.org. Catalogers with Web stores are faring even better, with 72% saying they're making money on those operations.

As online retailing builds market share category by category, traditional retailers remain threatened, adds James Vogtle, director of the consulting firm's e-commerce research. He notes that online merchants already represent 18% of computer hardware and software sales and 8.5% of book sales "after just two years of build out." Continued growth in these and other categories online will cause brick-and-mortar retailers to decrease the size and SKU counts of their stores, Vogtle says.

Despite the brighter news, the report also points out some rough spots, including a 15% increase in customer acquisition costs among Internet merchants. The 1999 average stood at $38 per customer overall and $82 per customer for pureplay e-retailers. As a percentage of revenue, the latter group spends 10 times as much on marketing as do multichannel retailers.

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