By George Anderson, Editor-in-Chief, Associate Publisher, RetailWire
A Financial Times piece about e-commerce in the U.K. points out that, back in the dot-com boom, there were evangelists predicting that online purchases would represent 25 percent of all retail sales by now. Similar predictions were made on this side of the pond. In reality, e-tail has yet to reach 10 percent of total retail in either the U.K. or the U.S,. and the rate of growth slowed as the recession took hold.
Another belief from the dot-com daze was that many pure-play e-tailers would emerge as major forces displacing some large brick-and-mortar operations. In reality, Amazon.com and a few others have hit it big as online-only merchants, while the major conventional chains have become forces in e-commerce.
Maureen Hinton, lead analyst at the retail consultancy Verdict, told the Financial Times, "The trust that you have in brands still needs that physical engagement to begin with and so [online retail] is more of a complementary channel than a supplementary channel."
Discussion Questions
for the BrainTrust Panel: How much of the overall retail business will online eventually become? Are there opportunities for more pure-play Amazon.com-like success stories to emerge? What will it take to make that happen?
RetailWire BrainTrust Comments:
You know, I could believe that eventually we will reach 25% across all categories being purchased online. It's just that, as with almost all technologies, it takes longer than people assume to get there. We, as an industry, have by no means plumbed the depths of the online or even multi-channel potential - multi-channel here to include the emerging mobile channel. And when I look at cross-channel, and have retailers tell me that "buy online/pick-up in store" generates 50% incremental trips to the store and those incremental trips add 50-75% on an average basket, that tells me that online has not done its best in cross-selling to consumers, and there is a lot more potential to be gained.
The bigger question in my mind is the implication. Because 25% online sales is not 25% incremental sales. It will cannibalize store sales, and fundamentally alter the economics of retailing. The structural and cost implications for stores are big (how many retailers do you know that budget store labor hours to support online sales, for example?), and no one seems to have much information about how increased cross-channel behavior is changing costs or driving new ones.
This ain't over yet!
Nikki Baird, Managing Partner, Retail Systems Research
Here's the key quote: "The biggest mistake retailers make is that they see their online business as a separate business from their offline business. They don't apply the same efforts or energy."
As for predictions, here were mine from the same time period:
Will online sales grow to the sky?
No, they'll plateau eventually. E-commerce sales will continue to grow at a double-digit pace for the rest of the decade, reaching 4.3% of total sales by 2010 (Global Insight). But the rate of year-over-year growth will likely decline from 24% last year (Jupiter Research), to 20% this year (Cowen & Co.), to below 10% by 2011.
The reason? The industry is maturing; most of the people who are going to spend money online are already logged on and shopping. There are no new fish coming into the pond (or, at least, rates of population and consumer growth are declining).
But the influence of the Web on retail sales will continue to grow this year, next year, and every year beyond. That is because use of the Internet for pre-shopping, comparison shopping, browsing and choosing a store destination is growing more important, not less, even (or especially) if the purchase is not completed online.
Therefore, even though online sales will eventually plateau, retailers need to integrate their in-store and online environments to drive traffic, provide consistent service and customer experience, get a unified view of markets and merchandise, and to increase sales, profits, market share and stock price.
Roger Selbert, Editor & Publisher, IntegratedRetailing.com
| Ben Sprecher, Founder & President, Incentive Targeting, Inc. Says: |
 The level of online retail penetration is, ultimately, going to vary dramatically.
What do you say? Send us your comments here |
Ultimately, this is a question of economics and the cost of the "last mile." Bricks-and-mortar retail has one great advantage over internet retail--the consumer bears the cost of the last mile without it appearing explicitly in the price of an item. For more expensive and/or higher margin items, internet retailers can afford to make delivery inexpensive or free, but for low margin, low price, perishable, and bulky/heavy products, the economics just don't work. So, a cashmere sweater or an iPod makes sense for delivery to your doorstep, but frozen peas, canned tomatoes, fresh salmon, and the like just can't be price-competitive when delivered. There will always be consumers who are willing to pay more for the convenience, but there will always be more who won't.
So, in short, the level of online retail penetration is, ultimately, going to vary dramatically. For standardized, shippable, high-value items (music, electronics, books, etc.), I suspect that we'll get to the point where the vast majority of sales occur online. But for grocery, it will take a fundamental shift in the distribution model before online grocery can move significantly beyond affluent, densely populated areas.
Ben Sprecher, Founder and President, Incentive Targeting, Inc.
First, how are we defining online? If we include mobile commerce purchases, then the numbers will continue to climb for a few years.
We then have to factor in online-influenced sales. Is "buy-online/pickup-in-store" a Web sale? Probably. What about a sale that happened because of a text message sent to a consumer's cellphone while the consumer is in the store? How do you account for a kiosk sale, where the kiosk data is actually online?
The very act of trying to split the channels and answer these questions is the wrong way to go. Think of it as one merged channel. If online whets the appetite for an online purchase or home (or the other way around), it's fine. Different channels will be more and less convenient to different customers throughout the day. Call center, mobile, in-store, online, self-service kiosk...we need to think of these all as part of the sales channel. Focusing on boosting online sales is almost as silly as trying to push more sales from the South entrance instead of the West entrance.
Evan Schuman, Editor, StorefrontBacktalk.com
Simply looking at sales through an Internet channel underestimates the effect of the Internet on retailing. The Internet and retailer websites provide valuable information that consumers scan and collect before they go to stores. Over 50% of consumers consult websites before they go to stores to purchase consumer electronics. Thus, the Internet channel has substantial influences on where consumers shop and what they buy.
Except for niche product categories like pet pharmaceuticals, it will be difficult for pure-play Internet retailers to compete against multi-channel retailers - retailers that sell to consumers through stores and non-store channels. Multi-channel retailers, by operating the channels synergistically, can provide more value to consumers than pure-play Internet retailers -order on Internet and pickup or return to store, order merchandise not stocked in the store from an Internet-enabled kiosk, etc.
Finally, consumers are more willing the buy branded products from an Internet channel because they are assured of consistent quality. Your favorite perfume brand will be the same if you buy it in a store or over the Internet. However, from the retailer's perspective, this is a double-edged sword. Brands might be most appealing to consumers using an Internet channel, but they are also the easiest products to compare on price. The low search cost afforded by the Internet will increase the price competition for branded products and shrink their margins.
Barton A. Weitz, Professor, Exec. Dir. - Miller Center for Retailing Education and Research, University of Florida
E-tail will continue to grow and play an increasingly more significant role in the decision-making and purchase of non-perishable items.
Why? Because when my 8-year-old daughter is interested in buying something, her first instinct is to ask me to "go shopping" on the internet, not hop in the car. We are raising a generation of children who have no qualms about linking their checking accounts or parent-funded credit cards to Paypal and buying online; children who will spend a rainy afternoon perusing the web for the perfect prom dress instead of going to the mall.
Suzy Teele, CEO, Aceda
I agree with the complexity factor; "multi-channel" is no longer limited to bricks and clicks, and all channels are now inextricably linked. I'll also point out that the goals for online have not stayed static; they've evolved as retailers gain greater insight into the full range of shoppers' needs, desires and brand interaction habits.
As more websites realize the promise of becoming comprehensive information hubs for shoppers, those that only peddle products will feel old school and ham-handed by comparison.
Carol Spieckerman, President, newmarketbuilders
Where I think online will continue to penetrate is in the Long Tail, where goods don't sell at volumes that can support a bricks 'n mortar presence. This is much of the story in books, movies and music, but it also applies to any number of specialized categories.
What's interesting about this downturn in this regard is the narrowing of assortments at retail, and the potential impact on ecommerce. As retailers in all categories cull assortments at the edges, this could increase the ecommerce share, both for cross-channel sites moving categories to online-only, as well as for the Amazons of the world.
Ted Hurlbut, Principal, Hurlbut & Associates
Read the entire story and RetailWire discussion at:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13858
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