E-retail profitability is on the rise, Shop.org’s 8th industry survey shows

Retailers continue to find profits online, according to The State of Retailing Online 8.0, the latest in the annual Shop.org studies conducted by Forrester Research of online retailers. Last year, online retailers improved overall operating margins to 28% from 21% in 2003, the report says. Catalog-based retailers continue to boast the best operating margins, which rose to 32% last year from 28% in 2003. Multi-channel retailers recorded record profitability last year.

“With profitability behind them, retailers can now focus on innovation and growth through things like increased integration of their online and offline businesses and internationalization of their sites,” says Carrie Johnson, lead author of the report and principal analyst at Forrester Research.

The State of Retailing Online 8.0, which surveyed 136 retailers, reports that 2004 online retail sales rose 23.8% to $89 billion, representing 4.6% of total retail sales. Including travel, online sales also rose 23.8% to $141.4 billion.

The report projects that online retail sales will reach $109.6 billion this year. Online sales including travel will rise to $172.4 billion this year.

Retailers expect fastest growth in cosmetics and fragrances, up 33%, over-the-counter medications and personal care, up 32%, jewelry and luxury goods, up 31%, and flowers, cards, and gifts, up 30%.

Retailers also expect the Internet to account for 10% or more of sales in several categories this year, including computer hardware and software (48%), tickets (28%), travel (26%), books (20%), consumer electronics (13%), cosmetics and fragrances (12%), toys and video games (12%), and flowers, cards, and gifts (10%).