Outlook 2006: The View From Shop.org

Retailers, analysts and solutions providers predict another strong year for e-commerce. Such continued growth from such a large base – $172 billion in e-commerce sales in 2005 – is impressive.

Given the promotional nature of the recent online holiday season (more free shipping, more sales, more discounts), it was expected that revenue would rise but that profit margins would fall slightly. However, the 2005 Shop.org/BizRate Research eHoliday Mood Study survey of merchants revealed that revenue and profit margins both increased. Moreover, the eHoliday Mood Study consumer survey saw post-holiday satisfaction jump 11 percentage points compared with last year. Increases in sales, profit margins and satisfaction are a powerful trifecta.

According to the Shop.org State of Retailing Online 8.0 report by Forrester Research, retailers with stores found that 38 percent of their online customers are entirely new to their business, which suggests a large amount of incremental business.

Of course, some online sales can be attributed to channel shift. But as Federated Department Stores chairman/president/CEO Terry Lundgren said recently, retailers shouldn’t use this fact to justify investing less in the online channel. Rather, retailers must embrace that this is how the customer wants to shop and invest appropriately.

Cyber Monday, a term that Shop.org coined for the Monday after Thanksgiving, proved big for online retailers. In media reports, a number of retailers reported significant growth on the day. And in the eHoliday Mood Study, when retailers were asked to report their biggest day of sales, the second-most-cited date was Nov. 28. Most retailers selected Dec. 12 as their biggest sales day.

Meeting Expectations

We all remember the headlines from the 1999 and 2000 holidays when retailers missed shipping deadlines. I don’t recall a single news story about this happening during the 2005 online holiday season. And it seems that delivery deadlines for standard, two-day and overnight shipping were all later this year than previously.

Retailers have the infrastructure and experience to meet delivery date promises. They also recognize that missing a deadline during the holidays is a sure way to lose a customer. The marketplace is too competitive to let that happen. Increasingly, the issues for online retailers will be similar to those that offline retailers face: broad economic trends and increased competition. The industry is maturing, and online shoppers look more like offline customers in terms of economic status. As retailers learn more about their customers and how to serve them, we will continue to see retailers raising the bar for great online and multichannel shopping experiences. Retailers that don’t find a way to keep up with their online shoppers’ higher expectations will fall behind quickly and lose market share.

Free shipping is a fascinating phenomenon. Online shoppers seem to irrationally react to free shipping offers, which often offer a lower dollar-for-dollar value than percent-off sales or other types of discounts. Retailers understand the power of free shipping and the consumer demand. This past holiday season, retailers offering free shipping with conditions such as a minimum order size climbed to 79 percent from 64 percent last year, according to the eHoliday Mood Study.

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