Online Retail's Continued Growth
A recent report by JupiterResearch projects that online spending will have a compound annual growth rate (CAGR) of 11 percent over the next five years, reaching $215 billion by 2012. According to the forecast, the onset of what may be a "short, shallow" recession that is expected to have little material effect on the online retail market.
The growth trajectory comes as no surprise. "We expected consumers to adopt online as a shopping channel and continue to shift more of their wallet over to online," says Patti Freeman Evans, senior analyst at JupiterResearch. However, online sales still constitute just a fraction of the overall amount consumers spend on retail purchases. One possible explanation is that the majority of online shoppers are in households with an annual income of $75,000 or higher, according to the report's findings. (With greater disposable income than the average shopper, these consumers are more inclined to spend, and affluence allows them to feel less affected by the threat of recession.) Based on observations of consumer shopping trends, Freeman Evans suggests that the online industry itself is becoming more mature. Online behaviors, she says, are "settling out" -- not only in terms of the types
of products consumers are buying over the Internet, but how much, how often, and from whom.
In fact, the "settling out" may be an overarching trend: JupiterResearch predicts that online retail sales will likely reach a plateau at 10 percent to 15 percent of total retail sales -- eventually. By 2012, however, Freeman Evans says, online will only have reached half of that level of penetration. Whether or not that prediction is considered high is all a matter of perspective. "Over time, there have been people talking about how online could take over everything, or it could be 50 percent [of overall retail spending]," Freeman Evans says. Nevertheless, she defends JupiterResearch's prediction as "wildly realistic."
The only factor that could truly change the e-commerce game would have to be a "monumentally disruptive technology," Freeman Evans says. "If something like that were to happen, then all bets are off." Today's technology has yet to reveal anything that will create enough force for online retail to dominate -- and Freeman Evans says she sees nothing promising on the horizon. There are ideas in development, she notes -- such as specialty printers that print out prototypes of industrial parts, providing potential buyers with a physical replica before actually making the purchase -- but, logistically, it would be very difficult to convince the average shopper to invest in such a large, complex piece of equipment.
Even for the generations of consumers raised with the Internet, it will be difficult to imagine a retail overhaul. "We do think absolutely that the teens of today will [eventually] spend more of their wallet online than the current 25-year-olds [do]," Freeman Evans says. But she maintains that it will be more of an organic change -- evidenced by the fact that current teenagers' shopping trends -- propensity to spend, number of buyers, spending habits -- have not changed significantly with age. "We can't really say they're suddenly going to change their behavior," she says.
Still, the majority of shoppers continue to turn to the Internet as their primary source of research before making offline purchases -- which is one reason Freeman Evans advises retailers to take advantage of the channel, if not for sales, then for marketing purposes. The Internet is loaded with information -- but in most cases, it's disorganized, she says. A consumer looking for something may know it's out there, but she has little patience for extensive searching.
There are other inherent difficulties in online shopping that may never be overcome, Freeman Evans says: consumers, for example, miss the "touch it and feel it" aspect available at brick-and-mortar locations, and long for the ability to receive their purchases instantly, without the burden of shipping.
"Online is still a relatively new experience and we're still learning how consumers interact, still developing tools that will make that interaction better, easier, faster, more convenient," Freeman Evans says. Necessity -- in the form of competitive survival -- may remain the mother of invention: Retail innovation will continue to push the limits of technology to provide the consumer with bigger and better options.
While the retailers themselves won't necessarily be the ones who produce the technology, they're going to be the driving force behind the vendors who do, Freeman Evans says. (The vendors themselves are pretty creative, she notes, citing companies such as Bazaarvoice, a provider of enterprise social-commerce solutions.) Retailers, she adds, are constantly "present[ing] dynamically more-relevant information to their consumers as they march through the Web site...there's [a] constant development cycle, constant refinement."
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