E-commerce categories with products bought mainly by women will generate most of the growth this year, according to the State of Retailing Online 8.0, a Shop.org study of 137 retailers nationwide conducted by Forrester Research Inc.
Online sales of cosmetics and fragrances are expected to grow 33 percent this year with over-the-counter medications and personal-care items projected at 32 percent. Online sales of jewelry and luxury goods will jump 31 percent while flowers, cards and gifts will rise 30 percent.
“Women have most of the clout in the offline world where they’re doing most of the buying, and what we’re seeing online is just the same,” Scott Silverman, executive director of the National Retail Federation’s Shop.org division in Washington, said yesterday.
The findings were part of Cambridge, MA-based Forrester’s latest installment of the online retailing study for Shop.org.
Released in late May, the study estimated that 2004 e-commerce sales grew 23.8 percent to $141.4 billion. Excluding travel, online retail sales were said to have increased 23.8 percent last year to $89 billion, accounting for 4.6 percent of all multichannel retail sales nationwide.
Forrester predicts that online sales, including travel, will grow 22 percent this year to $172.4 billion. Excluding travel, the figure drops to $109.6 billion.
This year may prove a watershed for several categories that are expected to receive at least 10 percent of their sector’s sales from e-commerce.
For example, 48 percent of channel-wide computer hardware and software sales are from online retail, ahead of tickets’ 28 percent, travel’s 26 percent, books’ 20 percent, consumer electronics’ 13 percent, cosmetics and fragrances’ 12 percent, toys and video games’ 12 percent and flowers, cards and gifts’ 10 percent.
Thirteen categories this year will breach the 5 percent penetration point.
Another finding from the Shop.org study is search engine marketing’s critical role in customer acquisition. Retailers reported that search engine marketing delivered 43 percent of overall customers to their Web sites. Last year, 87 percent of retailers who participated in the study used pay-for-performance search placement.
Also, retailers last year spent more than twice as much from their marketing budgets on search marketing than they did in 2003: $877,630 on average, versus $399,923 in the prior year. Search accounted for 19 percent of the responding retailers’ online marketing spending last year, up from 10 percent in 2003.
“It was particularly a turning point of how retailers are spending their marketing dollars on performance-based marketing,” Silverman said.
The Web site, too, plays an important role, the study found. Retailers claimed that the Web influenced 20 percent of in-store sales. Last year, 92 percent of multichannel retailers included Web addresses on in-store materials, up from 77 percent in 2003. Eighty-one percent also used their Web sites to push traffic to stores.
In another cross-channel effort, 45 percent of responding retailers let consumers buy and redeem gift cards online and in stores, up from 30 percent in 2003. Also, 24 percent of retailers last year offered in-store product availability on their Web sites.
Online retailers improved overall operating margins last year to 28 percent from 21 percent in 2003. Catalog-based retailers recorded the highest operating margins, rising to 32 percent last year from 28 percent in 2003.
Forrester and Shop.org urge retailers to focus on innovation and growth via better integration of online and offline businesses. The launch of country-specific sites to cater to international customers should be another priority.
This is also the time retailers should pay attention to customer retention efforts through database marketing and CRM measures.
“It’s important to remember that while there’s still strong growth, it’s not the same kind of growth of new customers coming online that retailers were experiencing in 2001 and 2002,” Silverman said. “Retailers who’ve been online have a large file of customers, and getting those customers to come back and spend with them is going to be a key growth driver.”
Mickey Alam Khan covers Internet marketing campaigns and e-commerce, agency news as well as circulation for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters
