According to The State of Retailing Online 7.0, a Shop.org study conducted by Forrester Research, 2003 online retail sales improved 51% to $114 billion, surpassing all industry expectations. All online product categories experienced strong growth with online travel sales, the largest category, leading the way with a 91% sales increase to $52 billion. Home and office ($11 billion) and computer hardware and software ($11 billion) were also major drivers.
Amazingly, sporting goods was the fastest growing category, according to the study, with a growth rate of 104% in 2003. Sales are projected to grow +37% in 2004. Sales of sporting goods online in 2003 reached $2.3 billion and are projected to hit $3.2 billion this year. This means 6% of all sporting goods sales are completed online.
Forrester predicted that online sales will reach nearly 7% of total retail sales in 2004, nearly double the level of just two years ago, as online retail sales are expected to grow 27%, to $144 billion.
REI has been playing the online retail game from the beginning, and according to REIs spokesperson, Mike Foley, the co-op has been quite successful at it. About 15% of all REI sales are customer direct via phone, mail order or Internet. Foley also told BOSS that while both in-store and online sales are exceeding projections, online sales are growing faster.
LL Bean has also been a dominant player in the on-line market while maintaining a strong in-store customer base. LL Bean spokesman Rich Donaldson told BOSS while the company keeps the exact numbers private, Internet sales are growing share as a percentage of sales.
According to the Forrester Report, retailers believe that 24% of offline sales last year were influenced by the Web, up from 15% in 2002. Foley said that REI is experiencing similar trends, but the opposite is also true.
“There is a temptation when you are dealing with online retail to forget about geography, to treat it like its just out there,” said Foley. “More REI customers shop on-line in areas where we have stores mainly because of the brand awareness.”
LL Bean has been seeing much of the same trends. “Retail feeds on-line, and on-line feeds retail,” said Donaldson.
After many years of losses the online industry began to achieve profitability in 2003. For the year, online retailers improved operating margins to 21%. Even Web-only retailers improved profit by taking control of marketing costs which were reduced by half, and operating margins of those retailers were up 15% compared with margins of -16% in 2002. 79% of all online retailers were profitable last year, up from 70% in 2002. All online retailers improved profit margins in 2003.
“Consumers continue to expand their online buying into new product categories as they become more comfortable shopping online,” said Carrie Johnson, Senior Analyst at Forrester Research. “This mainstreaming of the Web into consumers lives not only fuels online sales, but also creates new opportunities for retailers to successfully grow their online businesses.”
Successful online retailers are taking a comprehensive multi-channel strategy: 87% of retailers accept in-store returns of online purchases. Last year, 77% of retailers collected customers e-mail addresses at their stores, and 55% of multi-channel retailers now can place customers online orders from their store.
Foley said that REIs multi-channel programs have brought sales up across the board. The co-op has launched in-store Internet kiosks, e-mail gift-certificates, and in-store pick-up programs. 40% of REIs on-line customers opt for the in-store pickup and 1/3 of these customers purchase additional items when they come in – averaging $90 each. REI estimates these add-on sales have increased retail sales by a full percentage point.
Further data shows the online growth trend continuing. The U.S. Census Bureau now estimates that retail e-commerce sales for the first quarter of 2004 at $15.5 billion, an increase of 28%. According to the Census Bureau, E-commerce sales in the first quarter of 2004 accounted for 1.9% of total sales, while in the first quarter of 2003 e-commerce sales were 1.6% of total sales.
As far as categories are concerned, Foley said that “as a general rule” hard goods sell better online and soft goods sell better in-store, but he has seen an increase in apparel sales online. The Forester Report said that all apparel grew 47% in 2003 and is projected for a 42% increase in 2004 to $11.7 Billion, or a 6% share of the total apparel market.
>>>>With online sales growing at this rate, it makes what seemed like an expedient decision to outsource eCommerce look like a bad idea. When the contracts run out with their outsource partner, sporting goods retailers will be left not knowing how to run an ecommerce business and without owning the names of any of their online customers.
