February 26, 2004, 12:00 AM

Get ready for more online growth, retailers predict

How much of retail sales will the Internet account for? “In the long-run, e-commerce will account for 10-20% of the retail market,” Kal Raman, CEO of Drugstore.com Inc., predicted during the CEO Panel Discussion at eTail 2004 this week.

How much of retail sales will the Internet account for? Lots, said a number of speakers at eTail 2004 in Palm Springs this week. And unlike the hyperbole and over-inflated expectations of five years ago, those who predict high portions of retail moving to the Internet have some experience to base their predictions on.

“In the long-run, e-commerce will account for 10-20% of the retail market,” predicted Kal Raman, CEO of Drugstore.com Inc. He cited the books/music/video category as early evidence of the trend, where 10% or more of sales today occur online. “The same thing will happen in every retail category,” he said. “The only question is when.”

Speaking as part of the CEO Panel: The Future of Retailing Online general session on Tuesday, Raman said two trends are driving higher online sales: More women are shopping online and Baby Boomers with higher expendable income are becoming more comfortable with the Internet.

Other speakers on the panel confirmed the trend and added their own reasons for why online sales will continue upward. Jon Nordmark, CEO of eBags Inc., pointed out that Gen X and Gen Y consumers are moving into their spending years and are accessing the Internet through increasingly better technology, which prompts more shopping. Stephen Messer, CEO of affiliate services provider LinkShare Corp., noted that shoppers’ tenure online increases every year and that consumers with greater online experience tend to shop more online.

Ken Seiff, CEO of Bluefly Inc., added that as Gen X and Gen Y mature, they will conduct a large portion of their shopping online and will bring rising expectations with them. “As Gen X and Y mature, they will change how we view the channel,” Seiff said. “It will be tectonic.”

Few participants, however, indulged in the irrational exuberance of five years ago and most offered strong cautions as to what retailers still need to do to make sure the channel lives up to its potential. For instance, online product presentation still lags, noted Larry Freed, CEO of ForeSee Results and a member of the CEO Panel. “There needs to be a breakthrough in how sites interface with the consumer and I don’t know yet what it will be,” Freed said. The problem, he said, is that web sites do not effectively communicate the breadth of products available. “You go into a store and there’s thousands of square feet for hundreds of products,” he observed. “But you go online and there are only inches of space for tens of thousands of products.”

Further, retailers need to be alert to changes in the marketplace and adapt to them quickly to keep the momentum, Seiff said. “We’ve staked out the turf, but we haven’t built the stadium yet,” Seiff said. “We’re still using very simple business models. Broadband will change the rules of the game. Companies that figure out personalization and how to take advantage of broadband will be the leaders.”

In response to a question from David Fry, CEO of Fry Inc., who was in the audience, as to evidence for the coming rise, several speakers said the seemingly insatiable demand for convenience in any number of consumer areas will drive online sales. Messer cited McDonald’s an example of success built on convenience. “Convenience and a decent burger overruled a quality burger,” he said. “Convenience drives US shopping.”

Fry himself, as moderator of a panel the following day, predicted online sales of 5-10% of all retail sales and predicted that the Internet will influence 25-50% of all sales.

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