Forrester Looks Into Online Retail's Future
Online retailers in 2006 will concentrate on improving the checkout process and fulfillment methods, and on addressing security issues to ease consumer concerns, according to a new report by Forrester Research. "Trends 2006: Online Retail" also predicts greater multichannel integration, more pricey paid search, more fancy online merchandising, and improved operations from drop-ship solutions.
"As online retail continues into its second decade, business strategies that were once perceived as too complicated to integrate successfully like CRM programs and multichannel integration are now commonplace," says Sucharita Mulpuru, senior analyst and the report's author. "E-commerce retailers are up and running. Now, it's honing and refining a lot of what they already know." The channel made some progress through 2005, according to Mulpuru. Notable developments include using online versions of print catalogs, allowing for the online purchase and redemption of gift cards, and giving consumers the opportunity to buy merchandise online, but to pick it up in stores.
"However, for every step forward online retailing has taken some disappointing steps back," Mulpuru says. The first has to do with pricing. Roughly 75 percent of shoppers who abandoned their carts did so because they expected lower prices, and 68 percent of multichannel shoppers say they buy online because the price is lower than in stores. Still, some companies tend to get carried away with discounting. "A lot of retailers are caught up in the mania of '99. They feel they need to extend an offer at the drop of a hat in order to drive sales. Those that do are slipping through a downward spiral of decay." It's important for them to provide a fair price for the value, but those that provide specialty items like fashion and jewelry should concentrate more on servicing their particular customer segment.
Another area for caution is increased consumer security concerns. "The people who are paranoid have every right to be paranoid, because retailers haven't done anything about it," Mulpuru says. "The retail industry as a whole needs to take a more aggressive approach toward informing people how safe it is to shop." This is when customer service can make a big difference in helping consumers who might have concerns. In 2006, large merchants will work with companies like VeriSign and major credit card companies, and SMBs will continue working with companies like ScanAlert, which displays a "HACKER SAFE" logo on company Web sites, according to the report.
Drop ship will finally gain recognition in 2006, Mulpuru says. "As the growth of online retail slows [and] margins shrink, it will be essential for retailers to create efficiencies by shifting the expenses of stocking inventory onto their suppliers. Virtual inventory was supposed to have been the competitive advantage when the Internet bubble began, but suppliers that had mastered the art of single pick, pack and ship were few and far between." Last, overall improvements in the checkout process and in merchandising will lead many of the most noticeable changes next year: "Retailers will move beyond the basics in 2006 to get existing shoppers to spend more and coax holdouts to take the plunge."
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