RAPAPORT... Online sales are growing, and not simply maturing, as some in the industry had predicted. While the year-on-year percentage increases are softening somewhat, there is still plenty of growing left to do, and some categories, such as jewelry, can expect steady increases well into 2011. In fact, according to the latest report on ecommerce, “U.S. eCommerce: Five-Year Forecast And Data Overview,” from Forrester Research, Inc., “The jewelry category in particular is expected to double from $4 billion in 2006 to an estimated $8.5 billion in 2011, which would account for 14 percent of all online sales.”
NUMBERSIt’s helpful to understand what place these numbers have in the bigger picture. In February, the United States Census Bureau of the Department of Commerce released a report on online sales, not including travel or online ticket purchases. The report states, “Total ecommerce sales for 2006 were estimated at $108.7 billion, an increase of 23.5 percent (plus or minus 3.3 percent) from 2005. Total retail sales in 2006 increased 5.8 percent (plus or minus 0.3 percent) from 2005. Ecommerce sales in 2006 accounted for 2.8 percent of total sales. Ecommerce sales in 2005 accounted for 2.4 percent of total sales.” This means that online sales increased at approximately four times the rate of overall retail sales.
This kind of increase, however, is not going to continue. According to eMarketer, 2004 online retail sales topped out at $70.9 billion, a 25.2 percent increase over 2003. By 2005, online retail sales hit $88 billion, only a 24.1 percent increase. Though 2006’s 23.5 percent increase is still healthy, eMarkerter predicts that by 2010, online retail sales will likely only increase 16 percent over 2009, reaching $211.8 billion.
Still, the news is good. Ten years ago, more than $200 billion in predicted online sales seemed like a pipe dream. Today, predictions such as these indicate consumers’ growing comfort level with online shopping. According to the Department of Commerce’s most recent e-stat report, released in May 2006, “Rapid growth in e-retail has been the norm. From 2000 to 2004, retail e-sales increased at an average annual growth rate of 26.4 percent, compared with 3.9 percent for total retail sales.” While the report makes a point of noting that 2004 e-sales were only 2 percent of total retail, up from 1.7 percent in 2003, current U.S. government figures indicate that this percentage is increasing, however slowly.
It’s not just overall figures that are increasing, either. According to its latest internet shopping summary, JupiterResearch has found that “average online spending per online buyer increased from $667 [in 2005] to $742 [in 2006], an increase of 11 percent.” JupiterResearch expects online spending to reach $1,039 per online buyer in 2011 and says increases in the amount of online spending per buyer are more important to overall online growth than sales increases in product categories.
That said, online retail is still not seriously threatening brick and mortar…yet. According to Forrester, “Online retail is still less than 6 percent of the total retail pie. While this is not an insignificant number, the entire online retail industry is smaller than the annual revenues of Wal-Mart.” But while the numbers are still small, it’s important to note another figure. According to JupiterResearch, “Considering both buyers and browsers, i.e., users who research online but do not transact online, close to 86 percent of current online users research products and services online. However, some browsers will shift to purchasing online over time.”
WHO ARE ONLINE SHOPPERS?
So who are these online buyers and browsers? One thing that defines them is comfort with technology. According to JupiterResearch, “A clear correlation exists between users’ experience on the internet and the likelihood of their purchasing online. Users who have been online for two years or more show a markedly higher propensity to shop online, due to their increased comfort using the internet and greater awareness of online merchants.”
JupiterResearch also found that while today’s online shoppers are approaching middle age, the future looks considerably younger. According to Jupiter, “Users ages 35 to 50 are most likely to purchase online — 87 percent — while kids and teens are just beginning to emerge as an online customer base. However, kids and teens, not including college students, comprised 22 percent of the online population in 2006, and will account for 10 percent of the online buying population in 2011; therefore, it is critical to consider them in calculating online shopping penetration.”
Additionally, Forrester finds that while “price-driven consumers dominated the landscape of online retail for years,” that trend is now changing. According to Forrester, “A more lucrative value proposition for online retail is making life easier for time-starved consumers. Nearly 40 percent of web shoppers say they are pressed for time, and more than 70 percent find shopping online easier than through other channels. Furthermore, active web shoppers, a segment of consumers who spent at least $500 [online] during the past three months, comprise approximately 10 percent of the U.S. online population and are the group most likely to spend more dollars online and pay for convenience.”
PREPARINGAccording to JupiterResearch, “70 percent of online users will make online purchases in 2011, up from 66 percent in 2006. Combined with the growth in the online population, the overall buying population will climb at a steady rate from 135 million in 2006 to 165 million in 2011.”
Those are numbers worth targeting. Today’s online retailer should remember that while price is still going to be a relevant factor in the years to come, convenience remains essential. According to Forrester, “Nontravel online retail revenues will top the quarter-trillion-dollar mark by 2011. The driver of this growth? A segment of the most active web shopping households that is roughly 8 million strong. This group of consumers is extremely comfortable with technology and values convenience above all else in the online retail experience. As retailers begin to wade through their copious data warehouses and understand the who, what, when, where, why and how of this segment, they will benefit from targeting these customers.”
Article from the Rapaport Magazine - June 2007. To subscribe click here.