Forrester: E-Commerce Will Grab Larger Slice of Retail Pie

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NEW YORK -- Forrester Research brought back memories of the dot-com boom to most attendees yesterday at this year's Shop.org annual summit when it ran a familiar graphic in a panel discussion: A chart of U.S. e-commerce sales projections showing strong annual growth.


The consultancy is confident that U.S. online retail sales this year will close at $95.7 billion, climbing to $229.9 billion in 2008. Next year's sales are projected at $122.6 billion, with $149.2 billion, $176.8 billion and $204.3 billion forecast for 2005, 2006 and 2007, respectively.


"Right now, e-commerce represents 3 percent of total retail sales," Forrester consumer markets research director Kate Delhagen told e-commerce attendees at the show in New York. "By 2008, it'll be 8 percent."


Unlike other consultancies and market researchers, Cambridge, MA-based Forrester's projections include travel and auctions as part of the online retail sales pie.


Still, as things stand today, projected domestic e-commerce sales this year are roughly 2 1/2 times that of Sears, Roebuck and Co.'s revenue, Delhagen said. The figure also is 40 percent of Wal-Mart Stores Inc.'s revenue.


The multichannel shopper is driving these sales.


In 2000, Forrester counted 43.8 million households that are online. The next year this rose to 58.8 million, and in 2002 the number reached 63.6 million. This year, 67.5 million households will have gone online.


Yet while the number of households online has risen steadily, the percentage that buy online is relatively unchanged. Half of those households online in 2000 shopped in that medium. It dropped to 49 percent in 2001, before rising marginally to 51 percent in 2002 and this year.


This phenomenon is hard to explain. But Delhagen took comfort in a different set of research data. Forrester found the number of product categories purchased online has risen from 4.4 in 2000 and 6.6 in 2001 to 7.5 in 2002 and 8.1 this year.


People started off buying books, music and videos. As comfort levels rose, they graduated to shopping and ordering bigger-ticket items over the Internet.


The proliferation of broadband Internet access is slated to change things further, according to Forrester. Of those who buy online, 37 percent use dial-up telephone connections while 61 percent use broadband.


Retailers should note an even larger difference in the Forrester study. Dial-up users spent $324 online on average in the past three months. Broadband users spent $552 in that period.


Other metrics speak of the broadband consumer's superiority. The dial-up user's average annual income is $53,200, while the broadband consumer's is $70,500. The average age of the dial-up user is 47 to broadband's 43. And only 34 percent of dial-up users have a college degree, while 55 percent of broadband users are similarly qualified.


The same research indicated that 39 percent of dial-up users have children younger than 18 in the household versus 41 percent for broadband. Children clearly also are driving the adoption of broadband.


Broken down by gender, women are 55 percent of dial-up users but only 42 percent of broadband users. But it is a matter of time before women catch up with men, just as they have in adopting the Internet. Overall, as many women are online as men, with some studies putting them slightly ahead.


It is not a Shop.org conference if the word "multichannel" is not mentioned. Delhagen noted three trends attesting to the popularity of a multichannel approach.


First, catalogs are everywhere. They are not just in mailboxes and stores. They are on the Web, accessed via online reproductions of the print book, down to page-turning dog-ears. Consumers also can enter a SKU number from the book in a Quick Shop box online and quickly buy the item.


"Catalogs are not dead," Delhagen said, "they're just changing form and function. But they're still very important."


Next, the Web goes to stores. Kiosks, handhelds and shelf screens illustrate this trend. Store associates can guide customers to check inventory online and familiarize them with the retailer's Web site.


The final trend is the surge in driving the stores to the Web. Circulars, registries and information on events and locations are now commonly available online.


"There was a huge frenzy to put it online last year to bring the store feeling online," Delhagen said.


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