Will E-Commerce Ever Beat the 1 Percent Problem?

With an online shopping population growing 5 percentannually, the Internet accounts for just 1 percent of totalU.S. retail sales, according to the U.S. Department of Commerce.

And because of prevailing shopping preferences, e-tail’s piece of the pie is not likely to swell much above 5 percentin the foreseeable future, according to analysts.

“Consumers still use the Web primarily as a researchtool,” Forrester Research analyst Carrie Johnson toldthe E-Commerce Times. “There is a perceived risk withhigh-ticket items, so most consumers spend much moreoffline.”

As sales channels continue to intermingle, however,the Internet will influence more offline sales, makingit increasingly difficult to measure the Web’s financial footprint, analysts agreed.

Product Matters

The products consumers tend to purchase online areless expensive and less complicated, but this trend keeps a lid ontotal online retail sales. What is more, shipping costs are manageable only for smaller items.

“There are large categories of goods people are notbuying on the Internet,” GartnerG2 research directorDavid Schehr told the E-Commerce Times, “especially big-ticket items like furniture, majorappliances, automobiles and electronics, where directsensory input is integral to the buying process.”

The physical shopping experience also plays a pivotalrole in American society, and research continues toillustrate many shoppers’ need to speak with livesalespeople, Johnson said.

Learning Channels

Despite these factors, the increasing prevalence of multichannel retailsales strategies could boost the Web’s share of totalsales.

For example, Schehr suggested, catalog retailers could expand new andrepeat customer bases by allowing shoppers to submitcatalog-based orders online.

At the other end of the process, in-store pickups of online orders could alleviate customers’ shipping concerns, especially for larger items.

Cars Rev Up Sales?

Even with multiple sales and fulfillment channels, most online shoppers are hesitant to branchout beyond Web-friendly merchandise like books andCDs, according to Johnson.

One exception to this rule might be the automotive industry.Though online auto sales currently are hampered by legislative andinfrastructure impediments, they could significantly boost the Web’s overall sales impact, Schehr said.

“You only need to move a relatively few US$30,000 carsto start having a real impact on that [1 percent]figure, as opposed to $15.99 CDs,” he noted.

No Balloon Effect

Analysts’ long-term predictions suggest that unlessconsumers start buying new product categories, such asautomobiles, online sales will plateau.

Extending an e-tail growth curve beyond 2005 shows that sales willnot balloon over time but actually will flatten, according to Johnson.

So in the books category, for instance, the 20 percentshare that is currently sold online would be unlikely togo beyond 25 percent over the long term, she added.

Big Picture

As time passes, however, e-tailers must understand theInternet’s holistic impact on overall sales, not justthe amount of sales completed online, analysts urged.

Indeed, by 2005, Web devices will influence 26 percentof overall retail sales, according to an estimate from Forrester Research.

Retailers face the challenge of accurately trackingin-store sales that stem directly from online researchor promotions.

“Tracking methods are low-tech and subject to a lot ofvariability,” Schehr said.

Pulse Reading

Short of assigning each customer a unique identifier,there currently is no way for most retailers to track theorigin of every sale.

But as online sales arms become more integrated intooverall sales efforts, and as their general importancebecomes indisputable, it may not be necessary tomeasure Web-influenced sales separately, Johnson suggested.

She added that retailers wishing to collect empirical data on the Internet’s impact can administer customer exit surveys.

For example, BizRate works withretailers like Office Depot and CircuitCity to draw in-store customers to onlinesurveys by printing the surveys’ Web addresses onsales receipts.

“Does it really matter which sales originated online?”Johnson said. “As long as you are not struggling to prove the Web’svalue to the rest of the organization, it is better tounderstand the general impact of the Internet acrosssales channels.”

3 Comments

  • The x-percent barrier has been credited to consumers’ "perceived risk" with high-ticket items. This perception is what should be questioned. There was a perceived risk with e-shopping in general in the early years. Credit card guarantees and positive experiences have helped reduce this perception. When the perceived risk is lower, people will buy big-ticket items online for the same reasons they buy smaller items today. Selection, convenience, price, etc.
    The key to the solution is to remember that the limiting factor comes from a (mis)perception, not a real problem. Making web purchases ‘safer’ does not directly address the problem, demonstrating the safety and benefits of web purchases does.

  • The question should be: Will e-Business ever beat the x Percent Problem? How e-Commerce firms migrate to compete with brick-and-mortar, and vice-versa, is somewhat an irrelevant question, as it can be argued that most e-Commerce also requires shipping; hence, most e-Commerce also has a physical brick-and-mortar transportation component. Will e-Business be more than the present x Percent–definitely, as even researching on the web is part of e-Business, and this constitutes a significant and growing portion of the selling process.
    Another question which could be posed is–will mail-order eCommerce be more than 1 percent? Definitely. Right now, eCommerce is only in its infancy. Even the way we presently conduct mail-order eCommerce (mostly web-catalogue stores) will be replaced. Wait till you see what comes next.
    Chen Sun
    WebAndNet

  • Traditional mail-order sales are only a tiny percentage of total retail too, but that hasn’t always been true. According to Dennis Perisler, the archivist of Sears, Roebuck & Co., Sears didn’t start shifting to stores until 1925, and their stores didn’t outsell their catalogue division until 1930. If history shows that people used to buy more mail-order goods when access to stores was more difficult, then today’s new version of mail order — online retail — isn’t likely to flourish until merchants’ access to homes is at least as convenient as consumers’ access to stores.

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