January 19, 2001, 12:00 AM

What the Soothsayers Are Saying About The Short Term Future Of Web Retailing

Don Davis

Editor in Chief

Consumer adoption of e-commerce will continue to accelerate as 7 million Internet users make their first online purchases this year. With more than 17 million households shopping online by year-end, according to Forrester Research Inc. (Nasdaq: FORR) The firm estimates that US online retail sales for 1999 will reach $20.2 billion. By 2004, Forrester predicts that a new type of retailer -- the post-Web retailer -- will emerge to serve the 49 million US households that will spend more than $184 billion online for a variety of goods.

     The Internet is having a profound impact on the retail industry, enabling retailers to sell an infinite array of goods while using an unprecedented amount of customer information. As e-commerce matures, merchants will aggressively exploit this virtual shelf space and shopper data. Post-Web retailers will use detailed knowledge about a target customer segment to sell all the relevant products and services that a segment demands.

     "Post-Web retailers will need to do more than just sell everything to anyone," says Seema Williams, consumer eCommerce analyst at Forrester. "To succeed, they must anticipate customer demand, expand their product and service offerings into adjacent categories, and simultaneously sell through multiple retail channels, including stores, catalogs, call centers, Web sites, interactive TV, and mobile devices. None of today's merchants are prepared for post-Web retail."

     The key element to becoming a post-Web retailer will be a consolidated customer view to anticipate shoppers' needs. Merchants must centralize the available information about shoppers -- purchase history, direct mail responses, and Web store click-stream data -- to identify their most profitable customer segments. This information can be used to identify and adopt new product categories that will appeal to these customers. And by codifying merchandising rules, retailers can move beyond personalization into anticipatory selling.

     The greatest challenge facing post-Web retailers will be finding the right balance between product categories offered and customer segments served. Today's general merchants like Macy's and Wal-Mart will need to identify their most profitable customers and narrow their product offerings to capture this particular target segment. Similarly, superstores like PETsMART and Linens 'n Things will either have to expand their product offerings or partner with a post-Web retailer to deliver a particular category. Specialty retailers like SmarterKids.com and Gap will have to leverage their best-of-breed products by becoming category partners with the leading post-Web retailers.

     "Consolidation will reshape the post-Web retail landscape as merchants expand into complementary product categories," Williams added. "Meanwhile, consumer data will become the measure for all retail business decisions, from product launches to company mergers. The post-Web winners will be brand-name merchants with a strong offline infrastructure and the ability to establish an online retail gateway."

     Although online retail sales will continue to soar over the next five years, Forrester expects the number of online shoppers in the US to level off at around 50 million households. This trend will be offset by a steady increase in average online spending per household, growing from $1,167 in 1999 to $3,738 in 2004 as consumers shift from convenience and researched items to replenishment purchases like groceries. The next surge in e-commerce will come later in the next decade as today's Gen Y consumers start to enter their prime earning years.

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