Even if the gloomy economy keeps consumers locked indoors, they won’t be deterred from shopping online, where increasingly savvy retailers expect to see sales soar 45 per cent this year, a study released Wednesday by Shop.org and The Boston Consulting Group Inc. (BCG) said. Shop.org is an association of electronic retailers.
Despite dot-com doldrums, North American online retail sales grew 66 per cent in 2000 to almost US$45 billion, and are expected to reach $65 billion by the end of 2001, according to the study, entitled The State of Online Retailing 4.0.
Travel-related sales led the pack in 2000, reaching $13.8 billion, and will continue to grow by another 50 per cent by the end of this year. Growth in book and computer sales will lag over the same period, however, leveling off at 25 per cent and 15 per cent growth, respectively.
Although many dot-coms have suffered blows from the quick-tempered economy over the last year, online retailers have been able to narrow their losses and increase their ability to draw consumers, the study states. In effect, these “e-tailers” have become leaner and meaner, cutting operating losses as a percentage of revenue from an average 19 per cent in 1999 to 13 per cent in 2000.
Although the report said that online retailers have strengthened their performances overall, there are distinct differences between click-and-mortar and pure Web-based retailers. Whereas, 72 per cent of catalogers were profitable at an operating level in 2000, just 43 per cent of store-based retailers could boast the same, and only 27 per cent of Web-based retailers kept on top of their profit game.
These companies’ increase in profits were in large part due to their ability to keep a handle on their marketing budgets and how they nipped costs related to attracting customers. Those expenses dropped from an average of $38 in 1999 to $29 in 2000 for all online retailers. Web-based vendors went a step further, however, chopping their costs spent luring customers from $82 to $52 over the same period.
“(Online retailers) are not in infancy; we have moved to the toddler stage and have started to conquer the basics now,” Elaine Rubin, chairwoman of Shop.org, said in a conference call Wednesday.
“We have become a lot smarter and a lot more experienced,” Rubin said.
To keep strong results, store retailers will have to manage their retail channels, and Web players will need to focus on their niche markets or seek partnerships to make up for their online cost disadvantages and weaker brands, the study said.
Looking ahead, the study predicts that an expansion of the online retail market will open the door for general merchandise to see increased sales in categories such as home and office products, as well as apparel and toys.
The study was based on data from 550 retailers, 156 of which provided detailed information. Differing from past years’ analyses, this year’s study excluded financial brokerages.
The Boston Consulting Group can be reached at http://www.bcg.com/home.asp/.