September 27, 2007, 12:00 AM

Dollars and cents

(Page 2 of 2)

Given the rising cost of pay-per-click advertising and other forms of online marketing, some web retailers are spending more on marketing. For instance, 21.4% of companies are earmarking 25% or more of their online revenue for marketing and advertising. But the majority of merchants in the Internet Retailer survey are spending significantly less, including 8.4% between 10.1% and 25%, and 36.2% spending 10% or less. “There are exceptions, but if merchants are keeping their percent of web sales spent on a typical expense category to within the single digits they are in line with the industry,” says Whitfield. “Smaller retailers will be watching out for their expenses and probably only expanding organically where it makes the most sense.”

The survey finds that only 13.6% of merchants plan to execute a merger or acquisition in the foreseeable future. Of the companies that are anticipating a merger or acquisition, 52% expect the deal to happen within the next six months to one year, 21.7% within 12 months to two years and 13% in more than two years.

Organic growth

While many companies are too small to make a merger or acquisition, the survey finds web retailers are looking to expand their business. For instance, 65.3% of merchants will launch new product lines, followed by 45.3% with plans to launch new e-commerce or micro-sites and 36.5% that will add services.

Web retailers also believe that their current financial condition will enable them to support their ongoing business development and profitability, with only 35.7% expecting to cut expenses in order to stay in the black. “The Internet channel will continue to grow and the ease of shopping online combined with the fact that even more consumers will do their holiday shopping over the web bodes well for the market,” says Anne Brouwer, senior partner with McMillan Doolittle LLP, a Chicago retail consulting firm. “I see retailers expanding, but they are going to do it organically and will stick pretty close to an existing business model that’s already getting results.”

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