In addition to growth in revenue, the figures compiled from the study of 130 retailers show that US on-line retailers are continuing their march to profitability. Last year, 70% of retailers reported positive operating margins, compared with 56% in 2001. Collectively, retailers broke even in sales last year, up from a loss of 6% in 2001.
"In a time when the retail industry has been extremely challenged, it is encouraging to see the on-line channel continue to grow, and even better, start to make money," said Kate Delhagen, Consumer Markets Research Director, Forrester Research. "Last year was about breaking even, 2003 is about generating profits."
On-line retail sales are expected to grow 26% in 2003 to $96 billion, with seven product categories poised for more than 40% growth in 2003. According to the study, the continued growth of on-line shopping was underscored by more product categories reaching double-digit penetration of total retail sales.
Last year, 32% of computer hardware and software was sold on-line. Other categories reaching double-digit penetration include tickets for events (17%) and books (12%). In total, nine categories will exceed 5% penetration this year compared with seven categories in 2002.
On-line sales are expected to reach 4.5% of total retail sales in 2003, up from 3.6% in 2002. The study also showed that 40% of on-line customers are completely new to a retailer's entire business.
"As multichannel retailers continue to fine-tune their on-line selling and marketing strategies, consumers become more comfortable shopping on-line with retailers they know and trust," said Elaine Rubin, Chairman of Shop.org. "It took the catalogue industry 100 years to represent 4.7% of retail sales. It took on-line retailers only six years to accomplish the same feat."
With tighter marketing budgets, retailers were forced to try to do more with less last year. By shifting budgets away from expensive portal deals to performance-based affiliate marketing and search engine marketing, retailers were able to cut marketing costs almost in half per order placed ($12 to $8), with store-based ($5) and catalogue-based ($7) retailers most successful in this endeavour. At $10, web-based retailers had the highest marketing costs per order, but this is still a big savings compared with previous years.
Retailers are investing in technology to improve the multichannel customer experience. According to the study, most retailers (63%) have upgraded inventory management systems to allow for better management of the supply chain. An additional 40% offer in-store inventory availability through their Web sites, and 78% of retailers offer in-store returns of on-line purchases.
Nearly all of the multichannel retailers surveyed track customer behavior for their brand. As a result of these efforts, multichannel retailers reported that 46% of their on-line customers also purchase offline, and conversely, 17% of their offline customers purchase on-line. These multichannel customers have proven to be more valuable and loyal to retailers. In addition to direct on-line sales, these retailers reported that the Web influences 15% of their offline sales.
"The growth of the on-line channel has ushered in a new era in retailing, which makes shopping more accessible to consumers and improves the overall shopping experience," said Scott Silverman, Executive Director, Shop.org. "Consumers are embracing multichannel retailing, and retailers are enjoying growth and increased loyalty as a result."