According to a new forecast by Forrester Research, Inc., the second decade of eCommerce will be marked by innovations that will make online shopping easier and more engaging, which will boost US online retail sales from $172 billion in 2005 to $329 billion in 2010. The increase translates to a solid 14% compound annual growth rate over the next five years.
Relying on new online shoppers to drive sales brings only limited opportunity; more and more mainstream consumers have already migrated to the Web. Instead, retailers are investing newfound profits in emerging technologies, such as sophisticated analytics and personalization tools, that enhance the online experience for existing consumers. The result: Businesses no longer view the Web as a low-cost sales channel but as a way of improving customer service and retention.
“Businesses are debating their online strategy. Many believe they became too focused on sales. Now they're looking at their Web sites as a way to drive in-store traffic and increase their engagement with customers,” says Forrester Research vice president Carrie Johnson. “This is a huge shift in philosophy as eCommerce enters a more sophisticated phase. But it's also creating tension as CEOs demand ROI for expensive Web sites with hard-to-define metrics such as loyalty and brand. ”
Companies that illustrate this new philosophy include Target, which is using its Web site to promote and brand its retail stores; Gap, which is launching redesigned Web sites that ease the check-out process; and Nike and Timberland, two manufacturers that are exposing online shoppers to the idea of product customization. All are being forced to become more innovative online because pure plays such as Amazon.com, drugstore.com, Blue Nile, and Newegg.com have raised the customer experience bar.
The Forrester report includes a five-year forecast that breaks out online sales across 15 retail categories, including travel. Some highlights:
- eCommerce will represent 13% of total US retail sales in 2010.
- Travel remains the largest online retail category, growing from $63 billion in 2005 to $119 billion in 2010.
- General merchandise (all retail categories excluding auto, food and beverage, and travel) will top $100 billion for the first time in 2005.
- An increase in the number of women shoppers will contribute to 14% of jewelry sales moving online by 2010. Online sales of health and beauty products will grow at an annual rate of 22%.
- 29% of small appliance sales will migrate online by the end of the decade as a generation that grew up with Internet access begins to get married and attend weddings.
- Categories showing significant growth (growth above the overall 14% compound annual rate) include: apparel, consumer electronics, health and beauty, home products, food and beverage, and sporting goods.
The $329 billion represents a minor downward adjustment from Forrester's 2004 forecast of $331 billion for 2010. This is due to recent softness in overall consumer spending.