Online retail 'years away' from saturation

8:42AM Tuesday May 15, 2007
By Alexandria Sage

LOS ANGELES - E-commerce is moving "full steam ahead" and is years away from saturation, with double-digit growth expected for several years, according to an online retail industry report published today.

The survey by Forrester Research for Shop.org, the US National Retail Federation's digital division, also showed that 2006 was the first year consumers in the United States spent more money online buying clothing than buying computer equipment.

The industry's 25 per cent growth in 2006 to US$220 billion was above expectations of 20 per cent and matched growth seen in 2005, the report found.

"The channel continues to move full steam ahead while capturing a larger share of total retail sales," said the study, the first of two industry reports compiling data from 170 retailers.

Internet retail growth has been fueled by more consumers each year using fast Broadband connections and the profusion of easier, more navigable websites that encourage browsing and buying online.

Slicker websites, with better use of imaging that lets consumers see up-close views of fabric and detailing helped propel a 61 per cent rise in apparel, accessories and footwear sales in 2006 to US$18.3 billion, making it the No. 1 category in the industry, excluding travel.

Computer hardware and software, by contrast, rose 20 per cent to US$17.2 billion.

Retailers are doing a better job of identifying the hurdles keeping people from shopping online and addressing them, said Scott Silverman, executive director of Shop.org.

"They're making the shopping experience more natural," he said.

One example is the preponderance of free shipping and return offers. They have fueled a robust business in online shoe sales, with retailers such as Zappos.com, Gap Inc.'s Piperlime.com and Amazon.com's Endless.com all competing for a share of the market.

Despite ample room for growth, annual growth rates of more than 20 per cent will not last, said Silverman. The industry is expected to reap sales of US$259 billion in 2007, he said, representing an 18 per cent gain over 2006.

"At some point it's going to have to slow down," Silverman said. "Online retail is now in its 13th or 14th year, it's beginning to mature."

But while growth rates might be decelerating, retailers are still in the early stages of recognizing the positive impact a sophisticated online strategy can deliver, he said.

"Retailers are just beginning to see what that potential is," Silverman said. "But a lot of them are fairly far behind in terms of having an appropriate investment level to take advantage of that opportunity."

One leader in investment has been Amazon.com, which has been upgrading its systems and adding new features to its website to enhance the online experience. Wall Street has been critical of a 47 per cent rise in spending on technology and content in 2006, but Amazon claims that investments will pay off in the long run due to the loyalty of consumers.

But it is not quite time to shutter that brick-and-mortar store. The online retail industry still only accounts for 7 per cent of total retail sales, excluding travel. But certain categories represent a much higher percentage, like computers, where online sales make up 44 per cent of the total.

The food and beverage category, by contrast, represents only 1 per cent.

- REUTERS