E-retailing’s high margins are getting pinched by marketing costs
The profit margins of publicly held pure-play e-commerce companies—which average about 14%, double those of traditional retailers—are beginning to get squeezed by rising customer acquisition costs, Safa Rashtchy, senior Internet analyst at investment bank Piper Jaffray & Co., said this week at the Shop.org 2006 Annual Summit in New York.
“The margins for e-commerce companies are shrinking as the customer acquisition costs rise,” Rashtchy says.
A major contributor to customer acquisition costs is paid search marketing, which is also posing challenges to e-retailers by redefining the rules of merchandising, Rashtchy adds.
Nonetheless, Rashtchy and e-commerce analyst Matthew Fassler, managing director at Goldman Sachs & Co., say they remain bullish on the retail e-commerce space. “I really believe in the power of Internet retailing to improve the value of retail businesses,” Fassler says.
And though competition is mushrooming—Rashtchy says he figures there are now 500,000 merchants selling on the Internet—there is still plenty of room for growth in e-commerce sales, the analysts say. “E-commerce sales now represent just over 1% in total U.S. consumption, and just under 3% of total retail sales,” Fassler says.
Back...
