April 8, 2008, 12:00 AM

E-commerce will grow 17% to $204 billion this year, study says

Online sales will account for 7% of U.S. retail purchases this year, up from 6% last year, according to the first installment of the three-part State of Retailing Online 2008 report from Forrester Research and Shop.org.

Despite the economic slowdown, e-commerce sales, including event and movie tickets will grow nearly 17% from $175 billion in 2007 to $204 billion this year, according the first installment of the three-part State of Retailing Online 2008 report from research and consulting firm Forrester Research and Shop.org, the online retail arm of the National Retail Federation, a merchant trade association.

E-commerce sales also grew 17% from 2006 to 2007, the report says. Online sales will account for 7% of U.S. retail sales this year, up from 6% last year, the report says.

“Even in 2008, when retailers in general are expected to encounter challenges with growth due to uncertain or adverse economic circumstances, we project that online retail will continue to erode market share from other channels,” the report says. Forrester has reported separately that, although 61% of U.S. online shoppers expect the economy to worsen in the next year, 85% say they will spend the same or more online in the next year.

Half of online retail sales in 2007 came from five categories: apparel, accessories and footwear; computer hardware and software; autos and auto parts; consumer electronics; and home furnishings. The apparel category, which surpassed computer gear for the first time in 2006 as the top online sales category, is projected to hold onto the top spot again in 2008, accounting for $26.6 billion in sales, up 17.2% from $22.7 billion last year.

53% of marketing budgets will be devoted to online customer acquisition and 21% to online tactics for retaining customers, according to the survey of 125 retailers. Search engine marketing is the leading acquisition method, accounting for 35% of new online customers, followed by organic traffic 18%, affiliate programs 7%, e-mail to prospecting lists 7%, and comparison shopping sites 5%.

Other highlights of the report include :

  • The retailers surveyed manage an average of 31,839 paid search terms, on average pay 50 cents per click for a search ad and realize $8.47 in revenue per click.
  • Cost per order for online banners averages $84.21, compared with $50.74 for deals with traditional web portals, $50.11 for social network ads, $32.12 for e-mails to prospecting lists, $27.45 for comparison shopping engines, $19.33 for paid search, $12.24 for affiliate programs, $8.63 for natural search and $6.85 for e-mails to house lists. The average order value is highest for social network ads at $168.80, followed by online banners $133.01, affiliate programs $122.51 and e-mails to house lists $120.27.
  • While 85% of retailers say they offered free shipping on certain orders, last year, only 33% plan to increase such promotions this year. 57% plan to increase use of offers in outgoing packages from web orders, 45% online-only sales and 40% gift with purchase.

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