Retailers shift their ad spending from TV, radio and print ads to digital ads.
Strong growth in apparel sales contributed to a better-than-expected 25% jump in online retail sales last year, according to a study by Shop.org and Forrester Research. Apparel replaced PCs as the top category of online purchases.
Online purchases by U.S. consumers increased by a better-than-expected 25% last year, helped by a 61% increase in apparel sales, according to the annual survey of Internet retailers by Shop.org and Forrester Research. The category of apparel, accessories and footwear outsold personal computers for the first time in the 10-year history of the study.
Technologies that let shoppers zoom in on web site images and see clothing in different colors, combined with more liberal return policies by many e-retailers, led to the big jump in apparel sales, the report’s authors say. “Retailers are systematically addressing the hurdles for customers to buy online and the risk and uncertainty, particularly for shopping for clothes, where you’re buying without being able to touch and feel them,” says Scott Silverman, executive director of Shop.org, the e-commerce unit of the National Retail Federation trade association.
Overall, the report estimates that online retail sales, including travel, grew from $176.4 billion in 2005 to $219.9 billion in 2006. Excluding travel, sales grew 29% to $146.5 billion in 2006 and represented 6% of all U.S. retail sales. For 2007, the authors project 19% growth in retail (excluding travel) to $174.5 billion, which they say will be 7% of retail sales.
Sucharita Mulpuru, senior analyst at Forrester and principal author of the State of Retailing Online 2007 study, conceded that she had predicted online sales growth of under 20% for 2006 and was surprised by the 25% growth. She says her 2007 forecast takes into account tepid consumer spending overall as well as the likelihood that e-commerce growth eventually will moderate. “I’m being conservative,” she says.
The report’s estimates were based in part on responses from 170 retailers with online operations. Those retailers reported 48% growth in their online channels, versus 7% growth offline for those that operate stores. Mulpuru says the estimate of 25% growth in U.S. online retail sales also takes into account other published data on retail sales and consumer survey data as well as the responses from survey participants.
Among retailers participating in the survey, 83% said they were profitable in 2006 and 78% said they were more profitable than in 2005. Operating margin held steady at 9% on average, suggesting that expenses went up at the same rate as revenue in 2006 for the retailers taking part in the study.
Besides apparel, other categories showing big gains in 2006 were office supplies, up 48%; over-the-counter drugs and personal care, up 44%; movie tickets, up 48%; and pet supplies, up 81%. For 2007, the report predicts growth in apparel of 21%, pet supplies 30%, cosmetics and fragrances 25% and consumer electronics 22%.
The 170 retailers responding to the survey reported an average conversion rate of 3.1%, a shopping cart abandonment rate of 50%, 36% of revenue from repeat customers and an average online order of $117. Catalog retailers reported an average conversion rate of 4.4% and retailers with at least nine years online experience of 4%.
Companies in business for less than four years reported the lowest abandonment rate, 35%. The report’s authors said these are often web-only companies that are targeting a specific type of consumer with goods that are hard to find elsewhere, making it more likely transactions will be completed.
The report released today on market size and profitability is the first of two parts of the State of Retailing Online 2007. The second part, which will focus on retailer tactics and web site features, is scheduled for release in September.