'03 Online Sales Up 51%, Shop.org/Forrester Study FindsA new study found that e-commerce transactions in the United States jumped 51 percent to $114 billion in 2003, accounting for 5.4 percent of total retail sales and up from 3.6 percent in 2002.
The growth spurt was largely due to last year's increase in online travel sales. The findings were part of Forrester Research's State of Retailing Online 7.0 annual study for client Shop.org, a division of the National Retail Federation.
"We initially forecast that online travel sales would reach $27.4 billion, but a rebounding industry and consumer confidence helped boost actual sales to $42.3 billion," the study said. "Without travel sales, our initial 2003 consumer goods forecast of $68.2 billion is closer in line with actual sales of $71.8 billion."
Among the other categories driving e-commerce growth last year were home and office, and computer hardware and software, both accounting for $11 billion each.
"The most significant change in the past two years, is that all retailers in aggregate posted positive operating margins, including Web-based retailers, which struggled the most in 2002," the study said. "What's changed? Online retailing has experienced its own version of survival of the fittest, in which those online retailers that couldn't control costs while attracting online consumers shuttered their doors."
When Shop.org first published its study in 1998 -- then in association with the Boston Consulting Group -- online sales were only $13 billion of the entire retail pie.
This year's study examined online sales reported by 150 retailers nationwide.
Both Forrester and Shop.org are confident that this year's online retail sales will grow 27 percent to $144 billion. This means that e-commerce will account for 6.6 percent of this year's total retail.
"In 2004, no single category will dominate growth in online sales," the study said. "As the mainstreaming and maturing of the Web continues, product categories that fare well offline will fare well online as well."
Twelve categories anticipate that e-commerce will account for 6 percent or more of all retail sales, up from eight sectors in 2003. Of the sectors experiencing exponential growth online this year, health and beauty sales will jump 61 percent as more women shop online and drug stores move prescription ordering and loyalty programs over the Web. Apparel sales will rise 42 percent and flowers, cards and gifts 41 percent.
It is clear that online growth is coming from consumers expanding into new product categories as they become more comfortable with e-commerce.
The Internet also is affecting store-based sales, the study found. The responding retailers claimed 24 percent of offline sales last year was influenced by the Web, up from 15 percent in 2002.
A corollary of that finding is the tighter integration between the different retail channels. To wit: 87 percent of the retailers studied now accept in-store returns of online purchases, up from 78 percent in 2002. Not only does this make shopping easier, but the retailers said that one in four consumers buy in the store when they return an item bought over their Web site.
To cement further integration, retailers also are increasing cross promotions between channels. According to the study, 77 percent of the surveyed retailers last year collected customer e-mail addresses at stores, up from 57 percent in 2002. In addition, clerks at 55 percent of the retailers now can place customers' online orders from the store.
Like in 2002, 31 percent of the surveyed retailers said their Web, catalog and stores were in a single division.
As expected, such improved service raised customer service costs to $2.30 per online order last year, up from $1.90 in 2002. Fulfillment costs were up sharply to $9.80 per order, from $6.30 in 2002.
But not all expenditures increased. Overall marketing costs per online order fell 50 percent to $4 last year, from $8 in 2002. This was mainly because of Web-based retailers cutting costs to $2 per order last year, from $10 in 2002.
All said and done, online retailers are becoming more profitable. The study said 79 percent of all online retailers were profitable last year, up from 70 percent in 2002.
More specifically, online retailers last year collectively raised operating margins to 21 percent.
Because of their direct marketing legacy, catalogers were the most profitable online retailers. They had operating margins of 28 percent last year, up from 22 percent in 2002.
After putting a lid on their marketing costs, Web-based retailers reported operating margins were 15 percent last year versus a negative 16 percent in 2002.
"Overall, the outlook for online retail is very good and much of that is because retailers are beginning to work through all of their channels to increase customer service and satisfaction," said Ellen Tolley, director of media relations at the National Retail Federation.