January 30, 2003, 12:00 AM

The online shopping tidal wave isn’t breaking yet

Online shopping was up 23% in Q4 and 29% in 2002, and the good news about online shopping didn’t end on Dec. 24, Forrester Research analyst Christopher Kelley told attendees at the NRF Convention. Online retailers should prepare for more of the same for this year, next year and beyond.

The National Retail Federation’s Annual Convention & Expo in New York last month was almost two conventions. On the one hand were store-based retailers who were trying to get a handle on how to come back from what many researchers reported as a dismal year for retail-sales in November and December up only 2.25% over the prior year and full-year sales up 5%, according to ShopperTrak’s National Retail Sales Estimate.

On the other hand was the upbeat mood of the online managers. Online retail sales were up 23% in November and December over 2001’s two-month holiday shopping period and 29% for the year, reported comScore Networks Inc. “The mood depends on which session you’re in,” said Forrester analyst Christopher M. Kelley.

The good news about online shopping didn’t end on Dec. 24, 2002, Kelley told attendees at his “Evolving Profile of Web Buyers” session. Online retailers should prepare for more of the same for this year, next year and beyond, he said. The boom has been fueled by new consumers buying online and these new users will continue to grow through 2007, he said.

By the end of this year, the number of households that will have bought online will have increased by 53% since the start of 2000, to 43.3 million from 28 million, according to Forrester Research. “Anyone who thinks we’ve seen great growth should know we haven’t seen anything yet,” Kelley said.

The mass movement of buyers to the web is changing web-based retailing, he said. For one thing, average income of web buyers has fallen from $75,000 six years ago to $55,000 today, just above the average household income of $51,000. That means the retailers where lower-income consumers shop, such as Wal-Mart Stores Inc., will have a tremendous advantage online, he said.

Another notable change is the rise in average age from the low 40s in the late ’90s to 48 today. That means online retailers will have to make gift services, such as gift wrapping and gift cards, more prominent, Kelley says. Many older users will buy on the Internet for grandchildren or other family members who are not nearby. “And because these buyers are mostly inexperienced online, you’ll have to glare these gift services right in front of them,” he said.

In spite of the general gloom, the mood on the exhibit floor was upbeat, with many vendors reporting steady traffic. Vendors attributed retailers’ interest in technology to a recognition that those who will succeed when the economy recovers will be those who invest now in systems that will allow them to excel when spending returns. “Retailers are realizing they need to move forward,” said Elizabeth Fetter, president and CEO of QRS Corp. “There are indications that retailers are ready to invest in technology platforms because there’s a long lead time to implementation.”

In fact, new research from eMarketer Inc. reports corporations are poised to spend on technology again. “Corporations have largely finished cost cutting and are now considering how to invest for growth,” eMarketer says.

In its IT Spending Report eMarketer aggregates predictions for IT spending in 2003. They range from 4% to 7%, with increases coming as early as Q2. “Following a sluggish IT spending environment that saw businesses continue to reduce costs by paring their technology budgets in 2002, cautious optimism has returned to many industry analysts’ outlook for 2003,” says eMarketer senior analyst Steve Butler.

This year’s NRF convention attracted 12,500 total attendees-retailers, vendors and exhibitor staff. While the number is about the same as last year, the NRF says more retailers paid to attend sessions this year than last, indicating a desire for information that can help them in an uncertain economy. Exhibits were up 20%, the NRF reported.

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