May 23, 2006, 12:00 AM

E-retailing’s high priority means more competition, says new study

Retailers have elevated online business as a strategic priority, which signals increased competition, says and Forrester Research in “The 2006 State of Retailing Online,” their 9th annual report.


As sales and profitability levels continue to outpace offline figures, the newness of online retailing has yet to wear off; what is new, though, is the elevation of e-commerce by multi-channel, catalog and consumer brand manufacturer retailers as a strategic priority, according to “The 2006 State of Retailing Online” from, released today.

“The attention the web now receives from offline divisions is apparent across many disciplines, including the use of shared resources and offline marketing attention to online marketing tactics. It’s also clear that many retailers are in strategic planning mode to determine the role of the online channel over the next five to 10 years,” concludes “The 2006 State of Retailing Online.”

The study was conducted by and Forrester Research. is the National Retail Federation’s association for Internet retailers. Forrester Research is a technology and market research firm. “The 2006 State of Retailing Online” is’s ninth annual study of Internet retailing. Study partner Forrester Research surveyed 174 U.S. e-retailers, a representative cross-section of the industry in terms of product categories, channel orientation and size, the firm says.

Because the online channel remains new and intriguing to many shoppers and is receiving more attention and resources from retailers, Internet retailing is gearing up for another era of increased competition as dexterous retailers plan for multi-channel and online innovation, which will surface in the next few years, the study finds.

More retailers than ever are in the mix or expanding their product lines, including companies that previously were laggards, says Sucharita Mulpuru, senior retail analyst at Forrester Research and co-author of the new study.

“We’ll see some degree of divergence of the market. Some retailers, like the big pure-play, multi-category sites, will continue to drive sales by competing on price,” Mulpuru says. “Other retailers will see opportunities in competing on deeper selections and superior customer service. These will primarily be the multi-channel retailers able to supplement overall company sales and brand while still maintaining profitability.”

Other study findings and conclusions include:

  • Online retailers are bringing in help from other channels to leverage knowledge and infrastructure, holding profitability steady by not dramatically increasing or decreasing costs as a percentage of revenue, shifting some budget toward branding, and trimming superfluous and costly multi-channel initiatives.
  • Many retailers used 2004 and 2005 to develop 5- and 10-year strategic plans for the channel. After scrambling to learn the business during the first 10 years of e-commerce, many retailers took a step back to develop forecasts, budgets, personnel plans, customer segmentations, and tools and technologies required to create a best-in-class e-commerce operation. Initiatives retailers have outlined in these business plans will roll out during the next two to three years.
  • 2006 through 2008 will see the most innovation in online retailing. Consequently, retailers must stay on top of developments and continue to invest in the online channel. Also during this period, competition will heat up as many companies launch new online stores, especially manufacturers and boutique retailers, thanks to outsourcing services that make getting e-commerce up and running quicker and cheaper than ever.

As a result of these and other factors, to stay competitive Internet retailers will be making significant investments to stay ahead of current industry trends and look out for new trends over the next few years, the study predicts. The four areas that will see the most investment are customer service, guided selling, social marketing and loyalty, the study states.


These four factors affect three major aspects of the selling process for retailers: getting customers to a site, getting them to appropriate products once they’re on a site, then getting them to come back, Mulpuru says.

“Social marketing gets a customer to a site-it’s essentially an extension of word-of-mouth advertising. And it’s becoming increasingly important because it’s an inexpensive and effective way to drive traffic and sales at a time when traditional online marketing tactics like paid search, affiliates, portals and e-mail marketing are becoming more expensive and less effective,” Mulpuru says. “Guided selling and customer service get consumers to appropriate products. And loyalty programs keep customers coming back.”


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