Study: E-Commerce to Cut Retailer Sales

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The vast majority of electronic commerce sales will come at the expense of traditional retailers over the next three years, meaning offline businesses will have to use the Internet to protect their market share from electronic competitors, according to a report this week from Jupiter Communications.


The New York research firm projects that in 2002 only 6.5 percent of online commerce dollars will be "incremental" - meaning sales that occur above and beyond what would have happened anyway through traditional channels.


Jupiter forecasts incremental revenue accounting for only $3 billion of an expected $41 billion in total online commerce in 2002. Incremental dollars should make up about 6 percent of electronic sales this year, or roughly $720 million of an anticipated $11.9 billion, the firm said.


Businesses in the offline world largely have been "paralyzed by indecision" about moving onto the Web, rationalizing that sales generated digitally will merely detract from money they would have made through their real-world efforts, Jupiter said. But the firm pointed out that since most dollars made through the Net are in effect being swiped from traditional channels, merchants should see Web retailers as a threat that will steal market share.


"Merchants must accept that cannibalized sales are better than lost sales," analyst Ken Cassar said in a prepared statement.


Jupiter noted that Net merchants should be concerned by the projections as well, saying the competitive threat presented by large offline merchants moving onto the Web is much greater than that posed by Net-only businesses. Traditional retailers can take advantage of their existing customer bases, recognized brand names, customer data and ready-made distribution infrastructure as they venture online.


Sales tax considerations and factors such as inexperience in dealing with fulfillment and customer service are partly to blame for traditional merchants' hesitation to combine their offline sales channels with the Net, Jupiter said.
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