May 28, 2003, 12:00 AM

Online retail keeps getting better

While retail was generally flat last year, online retail’s growth rate continued its rapid upward climb, a Shop.org annual study conducted by Forrester Research reports.

While retail was generally flat last year, online retail’s growth rate continued its rapid upward climb. Among the 130 e-retailers surveyed in The State of Retailing Online 6.0, a Shop.org annual study conducted by Forrester Research Inc., sales rose 48% to $76 billion in 2002 over a year earlier. Included in the figures are sales of event tickets, travel and auction sales. Non-travel spending in 2002 was $43 billion and represented a 27% increase over the previous year.

At the same time that online sales continue to go up, so does the profitability of retailing web sites. The State of Retailing Online 6.0 reports that in 2002, 70% of retailers polled reported positive operating margins compared with 56% in 2001. Collectively, retailers broke even, compared with a loss of 6% in 2001.

Forrester forecasts that online sales’ upward track will continue this year, predicting 26% growth to $96 billion. However, the bright forecast notwithstanding, online retail, as it matures, will begin to face some of the same challenges that offline retail does, analysts say. ComScore Networks’ weekly analysis of online consumer spending, for example, shows that online retail spending took a hit while consumers were distracted by the Iraq war (see box). Nevertheless, comScore’s data show consumer spending online is still ahead of last year, year to date, by about 20%. ComScore’s figures include travel and event tickets in addition to merchandise, but unlike Forrester’s numbers do not reflect auction sales.

Helping to drive those increases are retailers’ efforts to tighten the integration of multiple channels, Shop.org’s study shows. As evidence, most of the retailers surveyed say they’ve invested in technology to improve the shopping experience. 63% have upgraded inventory management systems, 40% now offer in-store inventory availability through their web sites, while 78% offer in-store returns for items purchased online.

And more retailers are tracking shoppers’ behavior across channels to justify that investment. Among the retailers polled, 46% of their online customers also purchase from them offline, while 17% of offline customers say they’ve also purchased online. In addition to direct online sales, these retailers say the web influences 15% 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,” says Scott Silverman, executive director of Shop.org. “Consumers are embracing multi-channel retailing, and retailers are enjoying growth and increased loyalty as a result.”

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