Growth in online shopping slows, but channel shift continues
By Kurt Peters
As consumers demonstrate they like the convenience of online shopping,
retailers are stepping up their investments in the web channel
By Kurt Peters
Last year’s booming growth in online retailing may have cooled a bit, but
consumers are still shifting their buying to the web. While total retail sales
grew 6.9% through June, online sales grew 13% through mid June, reaching $21
billion from $18.6 billion, comScore Networks Inc.’s Media Metrix reports. Average
weekly online sales so far this year are $875 million vs. $775 million a year
ago.
One of the standout categories is online apparel, where sales for the year
are running 37% ahead of last year, averaging $135 million a week, comScore
reports. In fact, online apparel sales are picking up steam, averaging $141
million a week for the six weeks ending June 1, 51% ahead of the same six weeks
last year. “While this trend echoes strength in offline retail sales, the scale
of growth suggests a continued shift in apparel buying from offline to online,”
comScore says.
Walking into higher sales
The general trend in increasing sales is reflected at individual sites and
the particular boost in apparel is evident at individual apparel sites. Shoe
retailer Zappos.com, for instance, is on track this year to double sales to
$65 million from last year’s $32 million. Toy and game site eHobbies.com also
expects to double online sales this year, while auto accessories retailer J.C.
Whitney Inc. has experienced accelerating growth throughout the year—as high
as 40% year-over-year the first two weeks in June. Drugstore.com Inc. and ShopNBC.com
expect smaller growth—but still outpacing total retail sales growth; 10% at
Drugstore and 8% at ShopNBC.
The growth is general in the online retailing sector and reflects a commitment
by retailers to getting the basics in place as a foundation for more growth.
“All of our clients are looking for incremental gains,” says Jim Okamura, Chicago-based
partner with retail consultants J.C. Williams. “They’re doing a lot of the basic
blocking and tackling. They’re asking how e-mail campaigns will affect sales,
whether a catalog drop will get returns, or they’re refining the search capabilities
of their sites.”
While it’s clear that consumers are becoming more comfortable buying online,
each site has its own reason for growth. Zappos.com CEO Tony Hsieh attributes
his site's fast growth, in part, to a high level of customer service that pays
shipping both ways—out to the customer and back to the warehouse if the shoes
don’t fit or aren’t right in some other way. “Buying shoes online can initially
be a scary process for people,” Hsieh says. “But Zappos has withstood when other
dot-coms have failed because we provide the best customer experience, such as
free shipping both ways. Even though free shipping of both orders and returns
has cost us more, it has enabled us to keep our customers longer.”
Similarly, eHobbies.com president Seth Greenberg attributes growth to a number
of initiatives, including an innovative site-search box that eHobbies places
on affiliate partners’ sites. The search box on affiliate sites allows visitors
to search eHobbies’ database for products. A customer either navigates the search
function through a series of drop-down menus or inputs a search term. When the
customer clicks Go, the browser either launches a new window displaying eHobbies.com
or sends the user directly to eHobbies.com. Those searches are now responsible
for as much as 10% of eHobbies’ sales, Greenberg says, and he expects that portion
to continue to grow. “We’re just scratching the surface,” he says. “I still
have some key strategic sites I want to get to.”
Channel shifting
The growth at JCWhitney.com is the result of channel shifting as customers
adopt the convenience of online shopping, says Geoff Robertson, director of
technology at Chicago-based J.C. Whitney. Online sales in January and February
were 10% higher than January and February 2002, while March and April sales
were up 15-20% over the same months a year earlier. Then suddenly in early June,
growth accelerated to 40% over the same weeks a year ago. Meanwhile, companywide
sales were flat. “Channel switching is continuing,” Robertson says. “A lot more
of our Internet sales are coming from the catalog; customers like the convenience.”
At the same time that volume is growing, J.C. Whitney’s average order value
is increasing. In May, it was 5-10% above May 2002, Robertson says. He attributes
that to the growth of products available at the web site. J.C. Whitney is growing
its online catalog to all 55,000 SKUs, which, when applied to all the makes
and models of cars they can fit, represents 3 million variations of products.
“As more product goes up on the site, people buy more,” Robertson says. “It’s
so fundamental.”
Placing the right products in front of shoppers at the right time is one of
the key elements of retailing that is growing in importance online. Drugstore.com,
for instance, is re-designing its pages to present fewer but better targeted
and merchandised products to customers, says Ramer Holtan, customer retention
manager. “One of the directions we’re going is simplification,” he says. “We
want to present customers with fewer but clearer options. Our pages had become
more and more crowded and confusing, so we decided to stop just adding things
and start taking away.”
Homing in
Now, even though Holtan says Drugstore.com continues to live up to its boast
that it offers way more products than a corner drugstore, it is presenting products
in a more directed fashion. “We’re homing in on specific messages and value,”
he says.
Directed marketing is becoming the norm in external marketing efforts as well.
Internet search is becoming the marketing technique of choice for many retailers.
Retailers are attracted to search by the fact that consumers searching on a
product are already in the mind to buy it. Thus retailers are stepping up their
search efforts, with nearly two-thirds of marketing executives who use search
engines recently surveyed by Jupiter planning to increase their spending on
search. They also are refining their tactics and undertaking such initiatives
as directing customers straight to the product page from search results.
Similarly, retailers are getting smarter in their e-mail marketing. In fact,
with the concerns earlier this year over e-mail spam, they’ve had no choice
but to get smarter. Among the techniques: targeted e-mail newsletters. ShopNBC,
for instance, uses an e-mail newsletter to keep in touch with watch enthusiasts.
In spite of a perceived general antipathy toward unwanted e-mail, consumers
are signing up for e-mail newsletters. “The watch newsletter is growing at a
phenomenal rate,” says Lyn Mueller, senior vice president of ShopNBC Interactive.
Closer scrutiny
And affiliate marketing, too, is coming under scrutiny as retailers seek to
focus their affiliate networks. Some retailers have recently started trimming
back their affiliate networks, believing that there is in fact an administrative
cost to keeping on the books affiliate partners who don’t produce revenue. But
at the same time, affiliate marketing continues to be effective. “It continues
to be a major source of customer acquisition for us,” says Holtan. Drugstore.com
recently turned over management of its affiliate network to LinkShare Corp.
after managing it in-house and expanding to 30,000 affiliates. “It’s a very
steady and reliable channel for us,” Holtan says.
And then there are the shopping aggregator sites, which are a hybrid of affiliate
and search marketing. According to a recent poll by BizRate.com Inc., site aggregators
drive a significant amount of traffic. For one thing, customers are taking advantage
of the power of the web in permitting comparison shopping. In a new survey from
BizRate, 54% of consumers said they are focusing more on deals than they did
last year and only 4% of respondents said they never comparison shop when they
shop online. 44% said they do so most of the time and 20% said every time. The
remaining 32% said they comparison shop some of the time.
That comparison shopping adds up to a lot of page visits, BizRate says. An
online buyer visits four sites before making a purchase and visits the site
where she buys 2.6 times before purchasing. “There’s a deal-centricity going
on and it has been since the economy got bumpy,” says Chuck Davis, CEO of BizRate.
“Rather than walking into deals, consumers are proactively seeking them.”
That focus on deals is further illustrated by shoppers’ starting points. 47%
of online shoppers start at shopping aggregator sites, with 18% starting at
search engines, 17% at comparison sites, 7% at shopping portals and 6% at auctions.
The balance--53%--start directly at a merchant’s site. “Two years ago that was
70-30 merchants,” Davis says. “Shopping on the web is so fragmented that aggregators
will continue to play an important role. There will eventually be an equilibrium,
but we’re not there yet.”
Shifting attitude
While retailers are trying out all manners of marketing, they are more cautious
about technology. “‘Make do with what we’ve got’ is still the theme out there,”
Okamura says.
As the economy starts to show little signs of improvement, however, that attitude
may be changing. In fact research company IDC reports that information technology
spending in the retail industry this year will reverse last year’s decline,
setting the stage for five years of growth at an average compounded rate of
5.4%. IT spending in retail last year fell 3.4% from the year before.
“The retail industry ended 2002 much weaker than it began the year," says
Christopher Boone, program manager for IDC’s United States IT Opportunity: Retail
and Wholesale program. “IT budgets were negatively impacted as the year progressed
and retailers struggled to manage costs and meet profit goals. Despite the setback
in 2002, we expect retail IT spending to resume growth in 2003 and beyond.”
Boone says retailers’ IT spending will focus on improving margins and will
favor technology that can be implemented in a short time with a measurable return
on investment. By 2007, retailers will be spending nearly $30 billion a year
on IT, IDC projects.
The Yankee Candle Co. Inc. is a good example of a retailer spending to get
a return on investment. It invested in a revamp of its custom-candle section
and immediately experienced a 70% reduction in calls relating to custom candles,
as well as a 25% increase in orders and a 25% increase in the average order
size. “The day the new custom features went up, the calls went down,” says Darryl
Gehly, vice president of Molecular Inc., the company that redesigned the section
and, subsequently, the entire site. Yankee Candle obtained a six-month return
on investment, Gehly says.
While Gehly will not reveal how much Yankee Candle paid for the revamp of
the custom candle section, he says similar technology would have a list price
of $250,000.
Yankee Candle, a $450 million-a-year multi-channel retailer with about 200
stores, hired Molecular to make the custom candle section of its web site more
appealing and less cumbersome. Molecular solicited feedback from 150,000 customers
and got responses from 30,000. From them it learned that customers wanted to
see their finished candles before they placed an order. “It’s not profound,
but sometimes it’s the simple things that really make a difference,” says Bob
Stetzel, director of development at Yankee Candle. “If you give customers better
feedback, you increase their confidence in buying and reduce returns.”
Before the redesign, 96% of custom candle orders were handled by call center
reps, Gehly says. “The lengths of time were incredible,” he says. “Customers
could take 20 minutes to talk about what a finished custom candle would look
like.”
With the redesign, a customer who clicks on the custom candle portion of the
site gets a choice of candles, then a pop-up window that starts the customization.
Customers choose a label, a fragrance, a message, and, if desired, a wrap, a
ribbon and a flower. Each element is displayed on a candle and a customer can
change any element without having to start over. Before the redesign, customers
simply checked off the element they wanted from a list but did not get to see
the finished product. Sales of extras like wrap, ribbon and flowers also went
up with the redesign, Gehly says. Now calls to the call center are brief, in
the nature of a customer wanting more specific description of a scent, for instance,
and most customers return to the web to complete the order.
Broadband = buyers
Molecular used Macromedia Inc.’s Flash technology to create the customization.
One of the benefits of Flash is that Flash comes pre-installed on most computers
and so customers don’t need to download a plug-in or have broadband access to
make it work. Recent surveys from Nielsen/NetRatings show that retailers might
be well served to offer more rich-media applications, even those requiring broadband.
With a few exceptions, Internet users with broadband connections are more likely
to purchase in any category than dial-up users. 18- to 24-year-olds are 15%
more likely to make a purchase if they use broadband rather than narrowband.
Among 25- to 54-year-olds, that rises to 26%; it grows to 32% among consumers
55 or older, according to Nielsen/NetRatings @Plan survey, conducted in the
spring.
As broadband spreads, it’s a safe bet that online shopping will increase even
further. And some retailers are starting to look for staff to prepare for that
growth. “It’s very encouraging when I get calls from vice presidents of e-commerce
looking for marketing managers,” Okamura says. “Somehow, they’re able to scrape
together enough for another body. That wasn’t happening before.”
The bottom line: “Many of our clients are very happy with their online numbers,
enough so that they’re revising them upward,” Okamura says. “Last year’s growth
was not an anomaly.”
kurt@verticalwebmedia.com
