May 29, 2009, 12:00 AM

The Internet Retailer Survey: Positive Thinking

A majority of web retailers say their sales increased in the first months of 2009, and even more expect to be ahead in sales by year’s end.

By Bill Siwicki

2008 was a profitable year for most retailers, and sales in 2009 are looking up.

In fiscal year 2008, 76.7% of retailers reported net income while 23.3% reported losses. In the first quarter of 2009 compared with the first quarter of 2008, 51.6% of retailers experienced an increase in web sales, 30.8% a decrease and 17.6% were flat. For all of 2009, 64.4% of merchants foresee an increase in web sales over 2008, 16.7% a decrease, and 18.9% believe sales will be flat.

These are the findings of Internet Retailer’s new profitability and business development survey of 92 web-only retailers, chain retailers, catalogers and consumer brand manufacturers. And they are in line with the overall trend of online retailing faring better than selling in bricks-and-mortar stores.

“If you’re a multichannel retailer and you had to close stores because of the down economy, the avenue that could still reach customers was the web. If you closed a store in an area and the shoppers there really like your brand, they went to your web site,” says Gene Alvarez, vice president of e-commerce research at Gartner Inc. “Perhaps more important, the web is where people go value shopping, which is key in this economy. You have comparison shopping engines, and retailers doing special offers and more e-mail campaigns. In a down economy, value shoppers know it is cheaper to check out multiple stores on the web.”

Well-run operations

Even with shoppers looking for values that may eat into a retailer’s profit margin, retailers are remaining profitable because they are well organized, some experts say.

“E-commerce sites, certainly after the dot-com crash, have always been efficiently run. They were never frivolously spending money,” says Sucharita Mulpuru, principal analyst at Forrester Research Inc. “When you look at marketing allocation, for example, every dollar has had to pay off in sales in the near term. So web sites have always had a culture of doing things profitably.”

To remain profitable during the severe recession, many retailers are taking steps to trim expenses and capital expenditures. 62.6% plan to cut expenses while 37.4% will not. 45.1% will cut capital expenditures while 54.9% will not.

Of those who will cut expenses, 47.8% will trim in the general and administrative area, 29.3% in marketing and advertising, 17.4% in fulfillment and distribution, 17.4% in technology and 12% in other areas. (Figures do not add up to 100% because respondents could check more than one answer.)

Of those who will cut capital expenditures, only 5.4% plan to make cuts in their e-commerce platforms. 15.2% will make cuts in stores and real estate, 14.1% in web applications such as rich media and Web 2.0 technologies, 13% in catalogs, 9.8% in contact centers, 7.6% in fulfillment, and 10.9% in other areas.

Very few retailers are planning cuts in the technology theater of operations because as web sales growth continues to outpace store sales, now is the time to ensure web operations are as strong as ever, experts say.

“That few retailers are cutting into their technology budgets is a good sign for e-retailing,” Alvarez says. “In the last economic downturn, though not as severe, organizations like Amazon continued to invest in their web sites, and what happened was, as a result, when the economy turned around they were the ones best positioned and prepared for the turnaround and were the first to capitalize on it.”

Strategic investments

And many retailers are indeed making investments. According to the Internet Retailer survey of IRNewsLink e-newsletter readers conducted last month with e-mail marketing and survey firm Vovici Corp., retailers are putting money into several areas that can boost web sales.

59.8% are investing in increased marketing, 51.1% in customer reviews and social features, 48.9% site redesign, 46.7% additional products, 42.4% better site search, 40.2% streamlined navigation, 31.5% improved checkout, 28.3% more customer self-help options, 27.2% more payment options, 9.8% m-commerce sites, and 18.5% in other areas.

Forrester’s Mulpuru is not surprised that increasing money allocated to marketing tops the list.

“This data reflects the ongoing bias of retailers believing marketing is the factor that is most correlated to your sales-it is a factor, but not the most important factor,” she says. “There are a lot of points in the customer experience where you can easily lose a customer-landing pages, product detail pages, the checkout page. For whatever reason, such elements are often not treated with the same rigor as paid search spend.”

But for retailers boosting marketing this year, Mulpuru advises they sharply focus their efforts.

“The hope with focusing on new customer acquisition in part is to pick up orphaned customers from retailers that have gone out of business,” she says. “On the other hand, it may make sense to focus on retention marketing and making sure the customers who are coming to you and purchasing something are served as well as you can serve them.”

Designs on design

While 59.8% of retailers plan to juice up marketing spending, 48.9% will invest more heavily in site redesign to boost web sales, the survey says, with some doing both. Presenting a well-designed online storefront is especially important today as consumers expect more features and a better shopping experience on an e-commerce site, says Alvarez of Gartner.

“E-retailers are having to bring their sites up to, for lack of a better phrase, Web 2.0 compliance-improving the customer experience with rich Internet applications and adding Web 2.0 community capabilities,” Alvarez says. “The site I did five years ago isn’t going to cut it in the Web 2.0 world. Retailers redesigning today should be focusing on improving the customer experience to meet customers’ advancing expectations.”

bill@verticalwebmedia.com

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