Now that the vertical has finished reacting to the Internet, companies are making long-term investments in online consumers.
Posted May 23, 2006
After speeding past the $100 billion mark just three years ago, online sales will top $200 billion this year for the first time. According to Forrester Research's "The 2006 State of Retailing Online," online sales are expected to rise 20 percent to $211 billion. Sales excluding travel will reach $138 billion.
While booking flights and hotels still represents the largest percentage of online sales, the largest non-travel categories this year will include computer hardware and software ($16.8 billion), autos and auto parts ($15.9 billion), and apparel, accessories, and footwear ($13.8 billion), according to the study. In terms of online growth, pet supplies and cosmetics and fragrances are expected to increase sales by over 30 percent, more than any other category.
As a result, retailers are finally learning their lessons. Despite the Internet's emergence as a customer touch point, retailers have been slow in merging their offline channels with their online ones. But as customers increasingly use the Internet to compare prices, find gift ideas, and research products, retailers are now relying on their Web sites to not only sell merchandise, but also to increase sales at their physical stores. "By encouraging different channels to work together instead of in isolation, everybody wins," says Scott Silverman, executive director of Shop.org, which participated with Forrester in conducting the survey. "Retailers have been focusing on integrating their Web sites and stores to better serve their customers, which is paying off for companies in the form of higher sales."
To create a true multichannel environment, retailers are employing a variety of different strategies, according to Silverman. More than two-thirds of retailers now have consistent pricing across channels (79 percent), and almost half (46 percent) allow their customers to buy and redeem gift cards online and in stores. Additionally, many companies give customers the ability to accrue loyalty program points across channels (33 percent) and offer in-store product information for online (26 percent).
Forrester and Shop.org did find that consumers are still concerned about the security of their personal information when shopping online. In response, retailers continue to increase the security of their Web sites and are beginning to offer a variety of payment methods to online shoppers. Sixty-three percent of the 174 retailers surveyed require card verification value codes at checkout. For payment, 25 percent of retailers accept private-label cards while another 12 percent offer third-party email payment options.
Most of the retailers surveyed have begun to develop long-term forecasts, budgets, and IT investments to continue to merge their offline and online worlds. But these new initiatives are still in the planning stages and aren't expected to launch for nearly two years, says Carrie Johnson, research director and vice president at Forrester. "Retailers spent the first decade scrambling to react and learn about the Internet. Now, companies are able to take a step back and are busy planning strategies and prioritizing technology investment for the long term. The next five to 10 years of online retail will be even more competitive and more innovative than in the past."
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