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E-Commerce's 1.3 Percent Problem

By Bob Woods
Jan 20, 2003 4:00 AM PT

E-commerce, once the domain of "geek types" or consumers with high disposable incomes, has hit the mainstream. The U.S. Census Bureau says e-commerce spending increased by more than 34 percent year-over-year to US$11.1 billion from the third quarter of 2001 to the same period in 2002. And sales jumped 24 percent year-over-year, to $13.7 billion, in the 2002 holiday season.

But according to Census Bureau figures taken last fall, e-commerce revenues still amount to just 1.3 percent of all retail sales. That figure represents a slow increase from 0.7 percent in 1999's fourth quarter, but it has not changed much at all since Q4 2001, and it is unlikely to shift dramatically even after robust holiday results are taken into account. The upshot remains the same: E-commerce makes up less than 2 percent of all retail spending.

There is definitely a disconnect here. If e-commerce is becoming an ever-larger part of consumers' daily lives, why does it account for such a small slice of the retail pie?

E-Commerce's 1.3 Percent Problem

Reams of Research

One fact that does not show up in the Census Bureau figures is that consumers increasingly are using retailers' Web sites for research, which does not necessarily translate into measurable online sales -- especially for big-ticket or luxury items.

"There's a significant amount of retail being influenced by the Web, but there's not a lot of final transactions happening online," Bob Parker, senior vice president at AMR Research, told the E-Commerce Times.

Some companies, such as Circuit City, Best Buy and Sears, are trying to convert researchers into buyers via programs that allow customers to purchase items online and then pick them up at a brick-and-mortar store.

Certain products, though, must be seen or touched in person before a purchase can be finalized, according to Gene Alvarez, Meta Group vice president of electronic business strategies. "Would you buy a $10,000 plasma screen online? No," he told the E-Commerce Times. "But would you evaluate brands versus each other on the Web and get educated on them? Yes." The Web is at work in such transactions, though its role may be hard to spot via conventional research tactics.

Social Shift?

In addition, despite e-commerce's 24/7 convenience, consumers may be clinging to brick-and-mortar shopping because of its social aspect. Some shoppers simply like going to a mall and interacting with other people, including friends, neighbors and even store sales clerks.

E-tailers may be making headway, however, according to AMR's Parker. He said that in recent months, more seniors and females have been booting up their PCs to shop, rather than driving to malls. And once one person in a household starts going online to shop, others living under the same roof are likely to follow suit. In a way, then, online shopping retains a social aspect -- within the household. However, Parker said, this kind of activity does not necessarily show up in e-commerce research, so it is not an obvious trend.

A Broad Problem?

Alvarez noted that if dial-up consumers encounter high-bandwidth features, they are more likely to be "furious" than fascinated.

"At least when we all call by phone, we all get dial-tone response at about the same time," he said. "But we haven't reached that yet with the Internet, where everybody or a large proportion of the population have equal speeds to access these sites."

Or Not an Issue?

On the other hand, AMR's Parker said he does not think broadband adoption is affecting e-commerce sales -- because most e-commerce companies know better than to use technologies that a majority of shoppers cannot handle. If broadband were more prevalent, he noted, services like video-on-demand and massively multiplayer gaming might come into their own.

He added that broadband's lackluster reach prevents the introduction of new Internet-delivered products and features, far more than it prevents e-commerce from growing its share of all goods and services sold.

Talkin' 'Bout the Basics

Even outside the realm of broadband, stumbling blocks still abound when it comes to usability. Some sites still have not mastered one of the most basic foundations of e-commerce: the search engine. Many consumers are baffled by e-commerce sites' search tools, according to Alvarez. He calls it the "I-can-search-but-I-can't-find-it" hitch.

"For example, you type in 'printer' at a site, and up come 5000 hits on printers, printer cartridges, printer labels, toner and so on," he said. Not too helpful -- and a clear sign that e-commerce companies have their work cut out for them to increase their share of total retail sales.

Moving Toward Mainstream

Hurdles aside, one thing is certain: As the Internet and e-commerce have evolved from innovations into fixtures of modern life, consumers have grown more comfortable with the concept of conducting transactions online. At the same time, Web retailers -- either consciously or unconsciously -- have made their interfaces more consistent over the years, adding to consumers' comfort levels.

As familiarity with e-shopping continues to rise, so too will e-commerce's share of overall retail sales. Its influence may already be more extensive than it looks, and the march into the mainstream has only just begun.

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