September 30, 2002, 12:00 AM

The future of online retailing from the retailer’ vantage

“There is a resurgence of energy in this industry,” Kate Delhagen, retail research director for Forrester, said at the Shop.org Annual Summit last week. E-retailing sales will grow to $72 billion this year and hit $218 billion by 2007.

 

Put e-retailing professionals from Target Corp., Office Depot Inc., QVC Inc., eBay Inc., and Forrester Research Inc. on a panel trying to forecast the future of online retailing, and what emerges is something akin to asking five blind people to describe an elephant by measuring their experiences in touching different parts. Yet, all five agree that no matter which metric is used, the future of Internet retailing is extremely bright, a conclusion that was not so easily reached immediately following the dot-com implosion of two years ago. “There is a resurgence of energy in this industry,” declared Kate Delhagen, retail research director for Forrester, who moderated the panel at the Shop.org Annual Summit in New York last week.

Delhagen set the stage for the panel discussion by projecting that e-retailing sales in the U.S. (including event tickets) will grow to $72 billion this year, up from $42 billion in 2000, the period Delhagen referred to as “the rocky years.” She projected that the industry will continue to expand at a compounded annual growth rate of 26% over the next five years, hitting $95 billion next year and $218 billion by 2007, as the industry applies in the next five year the lessons it learned in the first five. “It will take this industry 10 years to achieve the revenue level it took Wal-Mart 40 years to achieve,” Delhagen said.

Delhagen led the panel’s search to define the future of online retailing by asking a series of pointed questions about their web experiences. What was the biggest lesson they have learned to date about retailing on the web? she asked. “Success on the web is the result of developing a great relationship with the shopper,” answered Monica Luechtefeld, executive vice president of e-commerce for Office Depot. “Every decision we make has to do with integrating the web into the rest of the business so it’s a seamless experience for the customer. If you offer a coupon online it has to be accepted in the store, and vice versa.”

But integrating the web into the existing business can nonetheless take that business in new directions. “We’ve learned that the web goes after a different kind of purchase-the considered purchase,” observed Steve Hamlin, vice president of operations for QVC.com. “And we can offer products that QVC doesn’t have on TV. For us the television community is the secret sauce, but our focus on the customer is different now (with the web). We are testing product features on the web and new ways of buying and selling online.”

When Delhagen asked the panel to name the greatest challenge facing e-retailers in the future, the discussion turned to broadband. “Broadband is going to be a major inflection point, and it’s going to change how small businesses work and what they demand of us,” responded Office Depot’s Luechtefeld.

For eBay, the answer to the greatest challenge question is simple and a challenge that most retailers would love to have to cope with. “Our greatest challenge is managing our growth,” said Lorna Borenstein, vice president of consumer products for the phenomenally successful auction web site. “We will do $13 billion in (gross merchandise sales) revenue this year, and that is from a company that started in 1995. Revenue from apparel alone with grow 70% this year, she says and eBay expects to list 750,000 apparel items.

And that growth has been despite the slow pace of broadband adoption. With broadband, Borenstein believes the growth management challenge will escalate. “This industry has been stunted by very low broadband adoption,” she said. “But as it develops, broadband will have a huge impact on our sales growth. It will have a huge impact in having a product on the web site that can be displayed in 3D.”

Yet she and others on the panel also cautioned about the perils of reacting to broadband prematurely. Despite its promise, the new technology is available in only 10 million homes, and it is not likely to tip the balance in favor of investing in broadband technology until its reaches 25 million. “We don’t want to lose sight of the mainstream,” said Cathy David, vice president of target.direct. Added QVC’s Hamlin: “We are actually simplifying the site because 95% of our shoppers are on dial-up connections that slow down the transaction. But when we hear from our community (that they are adopting broadband) we’ll invest in it.”

How will sites be different in the next three years? moderator Delhagen asked. “Our site will be simpler to navigate, and it will be a very personalized shopping experience,” volunteered eBay’s Borenstein, who predicts that eBay’s site will someday soon welcome back visitors with such personalized messages as “we now have the slacks in stock that you were interested in during your last visit.” She added that the auction site would also look a lot less auction-like, moving from dynamic pricing to fixed pricing, which reportedly now accounts for 60% of the site’s gross merchandise volume.

Many of the differences other panelists predicted had a lot to do with the changes likely to result from broadband adoption. For example, QVC’s Hamlin reported that 40,000 QVC.com visitors watch the on-air broadcast online today, two-thirds of them using broadband connections. That number will rise dramatically with broadband adoption, he predicted, adding that visitors to the site will be able to request “video on demand,” a webcast of the product as it was demonstrated on the TV broadcast. Office Depot’s Luechtefeld agreed that broadband will allow all retailers to deliver much more product information on the web, “hugely enhancing” the online shopping experience: “Content is the key win with broadband,” she declared.

The panelists also agreed that the future of online retailing will dramatically impact the future of retailing in stores. Web-enabled kiosks and POS terminals, they note, are allowing retailers to provide store shoppers with online access to thousands of products not carried in the store, while hand-held wireless devices can be used to communicate product features to store shoppers that could not possibly be provided through in-store signs or even by store associates. The web, said moderator Delhagen, is creating a movement toward building smarter stores. “We have to figure out how we can push web technology out into the stores,” she said, “because the customer gets conditioned to getting this stuff online.”

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