Online Retail Revenues to Reach $200 Billion This Year

As the number of people using the Internet for their shopping steadily rises, it is increasingly important for retailers to understand why consumers decide to buy products online or offline. According to a recent study conducted by and Forrester Research (2006), online retail is expected to hit $211.4 billion this year, a 20 percent gain over revenues of $176.4 in the year 2005. The market will have taken just three years to double from $100 billion to $200 billion.

The largest non-travel categories include computer hardware and software ($16.8 billion), autos and auto parts ($15.9 billion), and apparel, accessories, and footwear ($13.8 billion). Forrester projects that the highest growth rates will be for pet supplies and cosmetics and fragrances, with over 30 percent increases expected.

According to the report, online sales last year rose 25 percent to $176.4 billion. Excluding travel, online retail sales rose 28 percent to $113.6 billion, representing 4.7 percent of total retail sales in 2005.

The study finds the Internet can serve as a means of window shopping. Consumers compare price, find gift ideas and research products. Some of the resulting sales are transacted offline. When it comes to retailing strategies, Forrester is seeing efforts to integrate online and in-person sales. To integrate the experience online and offline, 79 percent of retailers have instituted consistent pricing across channels, and 46 percent allow for customers to buy and redeem gift cards on the Web site as well as at brick-and-mortar locations. Thirty-three percent of retailers have loyalty programs to retain customers, and 26 percent offer in-store product availability information online.

Payment over a secure channel remains an important task. Sixty-three percent of retailers surveyed require card verification value (CVV) codes at checkout. Private-label cards are accepted by 25 percent of retailers. Twelve percent of online retailers offer third-party email payment options, and nine percent accept eChecks. A further seven percent offer third-party credit accounts.

Data in the report are derived from sales data reported from 174 surveyed retailers and publicly available earnings statements. Forecast figures for 2006 are estimated based on the percentage of individual product categories that will move online and compared against a list of top online retailers by category.

Such cross-pollination is becoming more important: According to Forrester, “retailers reported that 22 percent of offline sales are influenced by the Web.” Retail Web sites are also a viable channel to reach new customers; more than one-third (38 percent) of online customers are new to a company's entire business (first-time buyers).


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