Report: Despite Sales Slump, E-Tailers Turning More Surfers into Buyers

A drop-off in first-quarter sales by e-commerce firms following the holiday season does not necessarily mean things are all bad for e-tailers, the Boston Consulting Group (BCG) told the E-Commerce Times on Wednesday.

In fact, e-commerce is showing several signs of increased vitality over last year, the research firm said.

According to the results of BCG's Q1 e-tailer survey, online customer conversion rates have grown from 1.5 percent in the first quarter of 2000 to 2.3 percent in the same quarter this year.

"What stands out the most is that despite the public decline in Q1 sales , the industry is performing exceptionally well in a year-over-year basis," BCG e-commerce analyst Julie Green told the E-Commerce Times. "The sales decline to a certain extent mimics the seasonality effects of offline retailing."

Getting There

In addition to the rise in conversion rates, customer acquisition rates are down 60 percent from over a year ago, dropping to an average of US$18 per customer.

"E-tailers are making more efficient use of their marketing dollars by using more targeted approaches," Green said. "There's a shift away from mass marketing , and with that you see more spending on affiliate programs, e-mail campaigns, direct marketing and catalogs."

Spending on print advertising decreased from 22 percent of online retailers' marketing budgets during 2000 to 13 percent in the first quarter of this year, while TV advertising has dipped from 7 percent to 2 percent, the report said.

Online Ads

The only consistent area in which e-tailers are still putting their mass marketing dollars is online advertising. Survey respondents said Internet advertising accounted for 23 percent of their total marketing budgets.

"We'll continue to see steady improvement in Q2," said Green. "Acquisition costs will start to stabilize, but retailers will shift more spending towards customer retention, which can have an impact on acquisition rates as well."

Smooth Sailing

According to BCG, the rise in conversion rates occurred steadily over the past year. Over the holiday period, conversion rates actually rose as high as 2.6 percent.

"Really it's been the ongoing improvement in site navigation and simplicity, as well as improving back-end operations so customers gain confidence in a site's ability to deliver products on time," Green said.

Higher conversion rates can have a dramatic effect on retailer profitability, according to BCG, because they generate higher sales without requiring an increase in marketing spending. Green expects this trend to continue over the course of 2001.

"We're seeing steady improvement over last year," Green said. "So on that basis, I see improvement, but to what extent I can't say -- probably a moderate improvement."