Online Retailing: How High is Up?

Jan 18, 2005
Al McClain

By Al McClain

According to Forrester Research, online as a retailing venue is looking good on a number of fronts. For example:

  • At the end of 2003, online sales amounted to over $114 billion, versus only $2.4 billion in 1997.

  • Average retailer operating margins increased to 21 percent in 2003, soaring from 0 percent in 2002, and -6 percent in 2001.

  • Thirty-seven million households now shop online, and the demographics are trending more mainstream. Average household income of online shoppers has dropped from $85K in 1997
    to just over $65K in 2004, indicating that the web is becoming more accessible.

  • Sixty-five percent of online households have researched purchases online in order to buy offline.

  • Online sales in 2010 are predicted to grow to $316 billion, versus $145 billion in 2004.

Net, net: Forrester sees online retailing as a channel that is maturing and will grow at an average 14 percent annual pace. They expect retailers that innovate, differentiate,
and personalize will do best.

During a discussion on Monday at the National Retail Federation convention, moderated by Forrester’s Carrie Johnson, panelists provided experiences and advice.

From Sam Taylor, SVP Online Stores and Marketing, Best Buy:

  • Best Buy is reaching consumers via four key touch points: 820+ stores; multiple websites; the telephone; and through its in-home “Geek Squad” services.

  • The online channel offers the opportunity to provide much larger assortment — in Best Buy’s case 2 to 10 times what’s available in store.

  • Retailers should have separate P&L’s for their online businesses, to promote accountability.

  • The ability to buy online and pick up in-store is a differentiator, and Best Buy generally can take an order online, confirm it, and have it ready for pick up in 30 minutes.
    Best Buy sometimes offers coupons good for pick up day only, on items that go with the item to be picked up.

From David Towers, VP eCommerce Operations, Liz Claiborne:

  • Online retailers need to get consumers to think of them as a source for solving their problems, providing them with shopping solutions, so they’ll automatically look for them
    when they need/want something.

  • While the Internet is now reactive to consumer wants and needs, soon the ‘Net, and even computers themselves, will really get to know individuals, and act more proactively
    on the consumer’s behalf.

From Denise Incandela, SVP Business Development and Saks Direct:

  • has developed very successful online trunk shows, doing five just since May, allowing consumers to see and reserve merchandise two months’ before it arrives in store.

  • E-mail marketing is very important, and e-mail segmentation drives up response rates dramatically.

The bottom line for these three retailers seems to be that they expect continued growth in their online businesses, but are intent on working a profitable model, keeping costs
down, targeting their marketing approach, continuing to press for efficiencies in the system, and making online shopping easier for their customers. In addition to sales and profits,
these retailers see the online channel as supplementing and complementing their other channels, enabling shoppers to “pre shop” before they get to the store.

Moderator’s Comment: How fast do you believe online retailing will grow over the next five-to-ten years? What pitfalls could impede growth? Will wireless
and mobile technologies drive online shopping in a significant way?

It’s interesting that even in the downtimes of 2001, online shopping continued to grow, and revenue is nearly three times what it was in the “good old days”
of 2000. With 39 percent of online households having broadband access in 2004, a jump of 22 percent in just one year, it stands to reason that online shopping is far from mature.
All retailers on the panel believe that personalization is at least a major aspect of the next big wave. One wonders if online retailers will make more hay with personalization
than brick and mortar operators have with data mining.

Al McClain – Moderator

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