(Washington, D.C.; May 25,
2004) Online sales sped past the $100-billion-mark in
2003, surpassing all industry expectations. According to
The State of Retailing Online 7.0, an annual Shop.org
study conducted by Forrester Research of 150 retailers,
2003 online retail sales jumped 51 percent to $114
billion. The study also reported that online sales
represent 5.4 percent of all retail sales.* Shop.org is a
division of the National Retail Federation.
While each online product category
experienced strong growth in 2003, certain areas were
particularly robust. Online travel sales were solid,
increasing 91 percent to $52.4 billion. Home and office
($11.1 billion) and computer hardware and software ($11.0
billion) were also major drivers for online
growth.
Profitability Reigns In
2003
After breaking even in 2002, online
retailers were poised for profitability in 2003. Last
year, online retailers collectively raised operating
margins to 21 percent. Once again, catalogers held their
post as the most profitable online sellers, with
operating margins of 28 percent, up from 22 percent in
2002. Even Web-based retailers joined the trend after
taking control of marketing costs; operating margins of
those retailers were up 15 percent compared with margins
of negative 16 percent in 2002.
"Online retailing has arrived as a
profit engine with double-digit operating margins," said
Elaine Rubin, Shop.org Chairman. "Retailers online have
found the right balance between selling a product,
acquiring and retaining customers, and earning a profit,
which is powerful news for consumers and retail
investors."
The study also found that a greater
number of retailers are continuing their march to
profitability - 79 percent of all online retailers were
profitable last year, up from 70 percent in
2002.
Strong Sales Growth To Continue In
2004
This year, online retail sales are
expected to grow 27 percent, to $144 billion. As online
sales increase, some sectors are experiencing extremely
high growth, with online sales expected to increase more
than 40 percent in the health and beauty (61%); apparel
(42%); and flowers, cards, and gifts (41%)
categories.
"Consumers continue to expand their
online buying into new product categories as they become
more comfortable shopping online," said Carrie Johnson,
lead author of the report and Senior Analyst at Forrester
Research. "This mainstreaming of the Web into consumers'
lives not only fuels online sales, but also creates new
opportunities for retailers to successfully grow their
online businesses."
Online sales are expected to reach
6.6 percent of total retail sales in 2004, up from 5.4
percent in 2003. Twelve sectors will experience a retail
share of 6.0 percent or higher this year, compared with
eight sectors last year.
Cutting Costs: Successes And
Challenges
Online retailers took control of
marketing costs in 2003, but struggled to maintain
budgets in other areas. Overall marketing costs per order
fell to $4 from $8, largely due to Web-based retailers,
which slashed costs from $10 per order in 2002 to $2 in
2003. Although retailers were able to halve their
marketing costs, customer service costs rose to $2.30
from $1.90 per order, and fulfillment costs jumped to
$9.80 per order from $6.30 in 2002.
Channel Integration Marches
On
Today, retailers understand how
much the online sector affects their brick-and-mortar
stores. According to the study, retailers believe that 24
percent of offline sales last year were influenced by the
Web, up from 15 percent in 2002. As a result, retailers
are bolstering their efforts to integrate channels. For
example, 87 percent of retailers accept in-store returns
of online purchases. In addition to in-store returns
offering a seamless shopping experience to customers,
retailers said that one in four consumers will make a
purchase in the store when returning an item they
purchased online.
Retailers have also gotten serious
about cross-promoting channels. Last year, three-fourths
of retailers (77%) collected customers' email addresses
at their stores, up from just 57 percent in 2002, and
clerks at more than half of retailers (55%) are able to
place customers' online orders from their
store.
"Retailers understand that, in a
multichannel environment, each channel has unique
strengths and benefits," said Scott Silverman, Shop.org
Executive Director. "We are beginning to see retailers
crack the code of maximizing each channel so that the
whole is greater than the sum of its parts."
About The State of Retailing Online
7.0
The only detailed survey that is
based on information from 150 retailers that shared their
confidential data, The State of Retailing Online 7.0
explores the opportunities and challenges facing
retailers selling and marketing on the Web, including
store-based, catalog-based, and Web-only retailers.
Forrester Research is an
independent technology research company that provides
pragmatic and forward-thinking advice about technology's
impact on business. Business, marketing, and IT
professionals worldwide collaborate with Forrester to
align their technology investments with their business
goals. Forrester offers products and services in four
major areas: Research, Data, Consulting, and Community.
Established in 1983, Forrester is headquartered in
Cambridge, Mass. For additional information, visit
www.forrester.com.
Shop.org is the association for
retailers online. It's where the best retail minds come
together to gain the insight, knowledge, and intelligence
to make smarter, more informed decisions in the evolving
world of the Internet and multichannel retailing. Founded
in 1996, Shop.org became a division of the National
Retail Federation in January 2001. The association's
membership includes interactive executives from
store-based retailers, catalog-based retailers, Web-based
retailers, and retail solution providers.
* "Retail Sales" include the
following categories: sporting goods and equipment;
flowers, cards, and gifts; health and beauty; travel,
consumer electronics; other (subscriptions, art, and
collectibles); apparel; jewelry and luxury goods; home;
food and beverage; books; tickets; computer hardware and
software; music and video; toys and video games;
auctions; auto and auto parts.