E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
(Page 2 of 2)
Maintaining an e-commerce system isn’t cheap-retailers’ e-commerce systems budgets range from $300,000 to $3 million per year, depending on the size of the company and the order processing volume, says Jupiter Research. Yet the Internet Retailer survey shows that web merchants have a healthy appetite for upgrading their hardware and software. Specifically, one-third of all respondents expect to purchase a new system within 12 months and an additional 16.7% within 24 months. By type of merchant, 38% of chains expect to add or swap out old e-commerce applications for new technology followed by 32.1% of catalogers, 31.4% of virtual merchants and 30% of consumer brand manufacturers.
A new or upgraded e-commerce platform can help merchants implement their multi-channel plans faster. But retailers also will be spending more on technology and services that increase traffic and sales conversions, in particular web analytics and search engine marketing.
Business-to-consumer companies across the board, especially online retailers, are increasing their spending on paid search and looking at new and different ways to maximize their natural search programs, according to the Search Engine Marketing Professional Organization. Search engine marketing was a $5.75 billion industry in 2005 and it will nearly double to $11.1 billion in 2010, according to SEMPO’s latest industry survey published in December. In 2006, search engine marketing spending will total about $7.2 billion and increase by 15.3% to $8.3 billion in 2007.
To pay for more search engine marketing campaigns, the SEMPO survey found that companies and retail organizations are shifting funding from other marketing and development programs, including web site development, affiliate marketing, e-mail marketing, yellow page advertising, TV advertising and direct mail, and using the money for more paid search. “Companies, especially aggressive users such as web retailers, will continue to spend significantly on search engine marketing,” says SEMPO chairman Gord Hotchkiss, who also is president and CEO of Enquiro Search Solutions Inc.
Shifting to search marketing
The SEMPO survey, which included detailed responses from more than 500 companies, found that 11% of all companies are cutting back primarily on web site development and affiliate marketing to pay for more key word campaigns. But the SEMPO survey, along with other reports, also finds that web retailers are placing an even greater emphasis on analytics to examine their campaign results and analyze buyer behavior. Another recent Internet Retailer survey of about 160 retailers reveals that almost one-third of all respondents, 31.7%, cite a new analytics application as their top e-commerce technology spending priority. 26% of the chain retailers, catalogers, virtual merchants and consumer brand manufacturers taking part in the study also expect to purchase a new hosted or off-the-shelf web analytics application within 6 months.
Another recent survey from Forrester Research-this one of 105 retail and business-to-consumer respondents-further suggests that web merchants are spending more on software and services that help them to better understand shopping behavior. The survey found that 30% of all companies plan to spend somewhat more on web analytics this year, while an additional 17% expect to spend significantly more.
Of particular interest to web retailers are new session monitoring tools from companies such as TeaLeaf Technology Inc., Quest Software Inc.’s Xaffire unit, and Coradiant Inc. that capture real-time data of each customer interaction. “These tools interact seamlessly with an existing analytics package,” says Forrester research analyst Sucharita Mulpuru. “Used in conjunction with web analytics, session monitoring tools can give a retailer both a bird’s eye and microscopic view of how their customers are performing.”
Several research studies, including the May Internet Retailer survey, provide ample evidence that retailers will invest heavily in new e-commerce technology and services this year. The Internet Retailer survey found that 79.3% will increase their e-commerce budget in 2006, with almost 11% expecting to increase spending by at least 50%.
Investors move in
But as retail companies continue to invest in new technologies and services, investors will continue to acquire and merge companies in a bid to piece together organizations with greater market share or to purchase companies with a recognizable brand. This year, some of the industry’s most recognized brands have been acquired or merged into bigger organizations. In June, The Carlyle Group acquired Oriental Trading Co. Inc. for an undisclosed amount. Also in June Sun Capital Partners Inc., a Boca Raton, Fla., investment banking firm with a stake in Mervyns LLC, and other retailing companies, announced that one of its affiliate companies, LV Catalog Holding Corp., has acquired Lillian Vernon from Direct Holdings Worldwide Inc.
Other recent high profile transactions include Liberty Media Corp.’s $477 million acquisition of Provide Commerce Inc. in February and IAC/InterActive Corp.’s purchase of Shoebuy.com Inc. for an undisclosed sum in January. As 2006 progresses, industry analysts are expecting even more mergers and acquisitions. “There is a tremendous amount of private capital out there controlled by people who want to buy into a market that’s the fastest growing segment of the retailing industry,” says LakeWest Group CEO Robert W. Antall. “I anticipate that the rate of merger and acquisitions will only accelerate.”