Outlook 2005: Golden Child Adds More Luster

E-commerce continues its reign as the golden child of retail. There is no doubt that some component of online sales is incremental. But much of its growth is coming at the expense of other channels. This year, more than ever, a multichannel strategy incorporating e-commerce is a must for retailers that are seeking not just to acquire new customers but retain existing ones.

Who better to know e-commerce than Dan Hess, senior vice president of Chicago-based market researcher comScore Networks Inc.? His company doggedly follows the progress of e-commerce and the consumer behavior shaping the new face of new retail.

What do you think will be the dominant trends in 2005 for e-commerce?

The blurring of channels will continue in both the operations of retailers and the minds and behavior of consumers. The retailers that have invested to fully connect merchandising and service across channels will continue to reap the benefits of these decisions. Retailers will increase their focus on precision through traditional practices such as marketing mix optimization and customer segmentation at a more holistic level that integrates online investments and strategies with those in other channels.

What challenges do retailers face this year?

As the linkages between touchpoints – Web site, store, catalog, call center, etc. – become more complete than ever, the consumer will demand flawless performance and seamless communication between these.

For example, a retailer encouraging buy-online, pick-up-in-store now has to be sure that customers have a first-class experience when they arrive in-store for the pickup. This has important implications upon organizational communication, performance and satisfaction measurement and associate training. Offline and online teams will all have to learn and adapt at the same rapid pace.

As topline industry growth naturally slows, retailer priorities will shift from keeping pace with the industry toward capturing a greater share of market and wallet.

It’s clear that search and affiliate marketing can deliver outstanding sales results, but there’s also a risk of improperly targeting spending on these vehicles. The challenge continues to lie in tapping the strength of these without paying multiple parties, multiple times to acquire and reacquire a customer.

Why are consumers choosing to shop online over catalogs or retail?

Catalogs are convenient for browsing and efficient as an element of the marketing mix, but consumers often find it more convenient to complete a catalog shopping experience online. Similarly, online browsing and searching precede and influence millions of offline retail shopping trips. Each offers unique benefits and enjoyment to the consumer, and the key is to allow the choice of where, how and when to shop with limited constraints.

Does touch and feel matter anymore? If it doesn’t, that means the consumer is shopping on price or convenience.

Sure it matters, but not equally for every single purchase. Here’s where long-term brand experience and flawless service perceptions build advantage because consumers feel less risk in purchasing without touching and feeling in advance.

Obviously, not all e-commerce growth is incremental. Where is it coming from?

To be sure, much of this is channel shifting. There’s also a great deal of category shifting, with retailers finding that the Web now makes it viable to merchandise categories that may not have been as compatible with current store formats or past customer profiles. For example, we found that one of our clients’ competitors increased its market share not by stealing our clients’ customers but by pulling sales of certain products into the category from other retailers that were not traditionally thought of as competitors.

Were there any e-commerce winners or losers in 2004? Big-box stores establishing their dominance online as well? What about Internet-only retailers?

While many online-only retailers performed extremely well, big-box players as a group, including broad-line and specialty, were the growth standouts. Our research showed collectively that these retailers turned in twice the sales growth as their online counterparts during the holiday season.

Which categories seem to be faring well online?

We saw strong gains in products such as home and garden, furniture and appliances, and jewelry and watches. This highlights the increased diversity of the online shopping basket that has come from consumers’ experience and comfort with online shopping. We’ve also seen resurgence in apparel, which became one of the largest categories online long ago through the migration of catalog sales, but is now attracting a new, incremental wave of buyers and transactions.

Old favorites such as computer hardware and consumer electronics continue to be among the largest categories. And one has to respect the fact that online travel continues to account for almost half of all online spending.

E-mail Dan Hess at [email protected]

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