Online retail may still be in its infancy, but it is quickly growing into a channel that cannot be ignored. A few years ago, most on-line retailers were only know for their lower prices and close-out merchandise, but today there are a growing number of profitable full-price on-line stores that are selling higher-end merchandise. As on-line sales grow and account for more and more of the retail landscape, many vendors who have a strict ‘no e-commerce’ policy, may need to re-think their stance, or loose out on a large piece of the market.

The U.S. Department of Commerce is reporting online retail sales continued their upward momentum during the first quarter of 2005 with a growth rate of 23.8% compared to last year’s first quarter. The entire retail market, including brick & mortar, grew 7.3% during the same period. E-commerce accounted for roughly 2.2% of the $916.9 billion retail economy during the quarter, compared to 1.9% during Q1 of last year and 2.1% for the preceding quarter. In the last five years, online sales have nearly quadrupled, jumping from $5.7 billion in Q1 of 2000 to 19.8 billion in the first quarter of this year.

Shop.org is reporting slightly higher numbers, but similar growth in the online sector. According to The State of Retailing Online 8.0, an annual Shop.org study conducted by Forrester Research, 2004 online sales rose 23.8% to $141.4 billion. Excluding travel, online retail sales rose 23.8% to $89.0 billion, representing 4.6% of total retail sales. Their report is also predicting that categories with products purchased largely by women will see the most growth this year, largely due to female’s growing acceptance of the on-line retail environment.

The report is also claiming that multi-channel retailers posted “record profitability” last year. The Brick and mortar retailers who participated in the study reported that the Web influenced 20% of in-store sales, and these retailers are striving to integrate their stores and websites. Last year, 92% of multi-channel retailers included URLs on in-store materials, up from 77% in 2003. In their efforts at integration, 45% of multi-channel retailers allowed consumers to purchase and redeem gift cards online and in stores, up from 30% in 2003, and 24% of retailers offered in-store product availability on their websites last year.

Nearly all retailers are at the very least taking advantage of the most basic form of internet commerce with 81% using websites to tout their stores.

Online retailers are improving their profitability as well with overall operating margins climbing to 28% from 21% in 2003. Catalog-based retailers operating margins rose to 32% last year from 28% in 2003.

For on-line retailers, search engine marketing is clearly the most effective means of attracting customers. Shop.org stated that search engine marketing delivered 43% of overall customers to on-line retail sites. In 2004, 87% of retailers who participated in the study used pay-for-performance search placement and spent an average of $877,630 in 2004 on this form of marketing compared to $399,923 in 2003.

OIA, in their recent top-line retail sales report included internet sales measurements for the first time. According to consumer research estimates, roughly 12.9% of all outdoor equipment is purchased on-line or through a catalog. OIA expects to have more accurate readings of this channel when point of sale data is made available in 2006.

OIA’s report stated that total on-line sales for fall/winter 2004-05 were $310 million with higher priced merchandise driving the sales. Sales vial internet and catalog have a 27% higher ASP than brick & mortar. Equipment sales are clearly migrating to the internet with $60 million in equipment sales on-line during the fall/winter period, or 15% of the category’s total sales. Sales of Telemark, Snowshoes, and Climbing Equipment were $25 million on-line, compared to $32 million at specialty and $34 million at chain stores.

Every study supports on-line retail’s continued growth and the fact that it is taking market share from brick & Mortar retailers. Already companies like Backcountry.com, Telemarkski.com, REI, and EMS are seeing returns on their investment through this channel. Other retailers are sure to follow, but the time is coming where the established players will be entrenched and the competition for the on-line dollar will increase.