June 19, 2007
Online Sales Grow at More Modest Pace
When you’re used to chalking up annual percentage sales gains of 20, 30, 40 percent or higher, it can be understood how you might take a more jaded view when revenues only increase by say 10 percent. That’s become the case today as retailers, analysts and others ponder the meaning behind the large number of online product categories that have seen growth percentages begin to taper off.
In a report in The New York Times, there was a suggestion that some consumers have begun to tire somewhat of the online purchasing environment while at the same time feeling better about shopping in stores that have learned (out of necessity) to become more responsive to the needs of customers.
John Johnson, a consumer who lives in San Francisco, told The Times why he shops in stores to buy books these days. “They’re working a lot harder,” he said. “They’re not as stuffy. The lighting is better. You don’t get someone behind the counter who’s been there 40 years. They’re younger and hipper and much more with it.”
Still, many see the slowing growth of online as simply an indication that retailers today are multi-channel merchants that have found the means to balance their offerings based on what consumers want. Ultimately, it has to be understood, that dollars, whether captured online, in stores or by other means, all drop to the same bottom line.
Dell Computer is among those that have broadened their approach to meet consumers where they want to shop. The company that built its business on a direct to consumer model recently announced it would make select desktop and laptop models available for sale through Wal-Mart stores and Sam’s Club locations.
“There’s a recognition that some customers like a more interactive experience,” said Alex Gruzen, senior vice president for consumer products at Dell. “They like shopping and they want to go retail.”
Nancy F. Koehn, a professor at Harvard Business School, believes consumers do not experience the excitement of shopping when buying products online. This leaves them wanting more that can only be obtained in stores.
“It’s not like you go onto Amazon and think: ‘I’m a little depressed. I’ll go onto this site and get transported,’” she said.
Many retailers are looking to offer consumers the best of both the online and in-store environment with services that allow orders to be placed on a website and picked up a location.
“You don’t realize how powerful of a phenomenon this new strategy has become,” said Dan Whaley, the founder of the online travel site GetThere. “Nearly every big box retailer is opening it up.”
Discussion Questions: What do you make of slower annual sales growth for products sold online? What does it mean for pure e-tail operators such as Amazon and eBay? What does it mean for multi-channel merchants?
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The Times piece was indeed flawed. The statistical issues were of concern (Poynter did a great examination of the stats used in the Times piece). But the problem with the story is much broader, namely that it operates on the premise that online and offline are rivals and that if sales in one area goes up, it’s winning and the other one must be losing. That simply doesn’t reflect how major retailers are using this technology and certainly not how they are preparing to use it in the near future.
This gets even more complicated than that because a meaningful definition of an online sale is very difficult to come by. The easiest–and least meaningful and accurate–way is to simply look at where the purchase was made and declare that that’s where the sales credit should go. Consumers today spend hours online and might pick up the item at a nearby store for convenience. The other way around is equally popular. Then there are the truly hybrid sales (an in-store kiosk that is a limited version of the Web site, a smartphone that looks at a 2D image on a display and gets the consumer deep into their E-Commerce site, etc.) On Sunday, we tried to look at the extreme difficulty of isolating online sales and even asked whether it makes sense to try.
The Times, however, found it easier to go with an online-vs.-offline approach. Wouldn’t retailing be a lot easier if things were truly that black and white?
Is the moderating growth of $110+ billion consumer touch point news? Arguably yes, although I think the Times headline writers deserve a bit of re-education in this instance.
The real story is about the cumulative influence that online merchandising, marketing, promotion and selling have had upon retailing overall. It’s a multichannel world (Roger nails this pretty well above) and it’s very difficult to sort out the Web-influenced sales from the pack because they are elements in the same continuum.
Several astute observers above note that physical stores have adjusted their methods in part due to the virtual store influence. Shopping kiosks, cross-channel pickup and return policies, store manager compensation, even merchandising methods have all been revisited. The catalog industry has been largely transformed, and numerous “pure” remote sellers have added physical stores out of strategic necessity (think Dell, Lands’ End).
So what if we have reached the end of the hockey-stick portion of the online sales growth curve? This moment was entirely predictable back when it was a $10B sector. Now that it’s eleven times that size I think we may consider a low-double-digit growth rate significant still. This is not the beginning of the end, folks. It’s just the end of the beginning.
Online shopping was never intended to replace brick & mortar. Numbers can be made to say many things. It is all in the interpretation of the numbers. Susan’s example of numbers in a maturing business is the best way to show what most of us are thinking.
What does this mean for the Amazons and eBays of the world? They need to start looking at growth percentages the way a more mature business looks at it. If they want spectacular growth, then they need to get into new businesses ala GE.
I would start worrying when there is NO growth.
In many progressive retailers, the lines are blurred between online and brick and mortar. People are shopping online before they visit the stores. And they are shopping online after they visit the stores. Where the transaction occurs will soon be irrelevant as retailers integrate their value proposition.
How do you expand the value proposition? Here are some of the basics:
1. Offer web access to your store employees and store visitors.
2. Extend your assortments online.
3. Offer repeat purchase options to online shoppers who buy repeatable items in store.
4. Build virtual communities online for feedback on products they buy.
5. Offer pick up at the local store for online purchases.
6. Offer shipping trackable online for purchases made in the store.
7. Offer online customers previews of markdowns, special buys, and promotions. This will drive store traffic.
8. Integrate your reporting so category performance can be evaluated across channels.
9. Keep track of your sales in a geographic trading area not just physical or online stores.
10. Monitor average sales and number of items purchased in each channel. Notice frequency, too. With high gas prices you’ll be seeing less of them.
Do these things and you’ll care less about increases in separate channels. You’ll be looking at overall increases and improved loyalty.
Although I agree with the others that online sales will continue to grow in the future, it seems to me that the travel business (airline and hotel reservations)has probably matured–and since it is so large in term of dollars–it possibly has had a large impact on total online sales growth rates.
I still enjoy shopping online, since there is often more variety and size selection that seen at retail but I also wonder if the high price of gasoline and other pressures on disposable income has forced consumers back into brick and mortar stores looking for sale prices and clearance markdowns.
Slower online sales growth is not tremendously surprising. Over time, we will see brick-and-mortar and online sales are of equal importance to shoppers. Accordingly, one experience needs to be consistent with the other. Many of today’s IT solutions can help bridge these two mediums together into a consistent experience.
Online shopping has been viewed as the holy grail of shopping business. Certainly, it has been a growing and profitable medium. However, consumers have spoken, and they value many different channels of shopping, besides online. Now, retailers must respond with differentiation and organization.
Is the blossom off online? I don’t think so. It is much easier to get 50% gain from smaller numbers (50% of 20 = 10 no problem but 50% of $2,000,000 = $1,000,000 much harder). We are seeing this channel level out as it matures with not as many aggressive peaks.
It is very important, however, to look at every sales channel separately. To have a separate marketing plan and consumer outreach plan for each. Consumers may not be purchasing online as much but they are doing research online.
It is refreshing though for stores to wake up and smell the coffee! Suddenly they are making the shopping outing an experience, therefore, enticing the consumer to stay and visit often.
The perception of slower growth for online retail sales is somewhat flawed because of the following factors:
1. The larger and more mature the number of cumulative users the smaller the percentages of growth are likely to be.
2. In the beginning cycles of on-line retail sales there were a large number of wannabes, incompetents, and under funded players. As the new economy matures the online consumer will mature, as well, and the growth in numbers will be less impressive, but far more solid.
Overall, it’s still a new economy that will go through many cycles but online retail will be like a good stock that over time will grow up and be very strong.
Let me join the chorus. The absolute percentage of online sales growth will slow (it’s easy to gain double digit growth off a zero base) but the importance of online retailing will continue to grow exponentially for years.
Slower annual sales growth for products sold online is just a matter of the sales channel maturing. While the growth in terms of percent may be slowing, a more realistic figure to look at is the total volume of sales in dollars.
The growth rate of Internet sales may slow, but the influence of the web on retail sales will continue to explode. That’s because the use of the Internet for pre-shopping, comparison shopping, browsing and choosing a store (or web site) destination is growing more important, not less, even (or especially) if the purchase is not completed online.
This is the biggest trend, today and for years to come, in the retailing industry, and why I publish, consult and speak about Integrated Retailing.
Retailers need to integrate their in-store and online environments to drive traffic, provide consistent service and customer experience, get a unified view of markets and merchandise, and to increase sales, profits, market share and stock price. This is what will separate winners from losers, the profitable from the unprofitable. (In fact, the retailers I have identified as being industry leaders in multi-channel integration have seen their share prices rise an average of 30% over the last year.)
E-tailing does not replace bricks-and-mortar retailing, it complements it. It’s an extension of consumers’ in-store experience (or should be). It’s a resource of information, comparison shopping, and consumer reviews and rankings. 87% of consumers shop online before buying offline, and credit the Internet with improving their in-store shopping experience.
At present, online research influences about $400 billion in in-store sales annually, but is on pace to surpass $1.1 trillion by 2012. Multi- or cross-channel shoppers shop more, spend more, have more to spend (being somewhat richer, more educated, etc.), and are the most desirable consumers.
All good points above, and the ROBO phenomenon (research online, buy offline) is finally getting its due as a critical strength of online advertising.
But before we even go to all the reasons why this slowdown makes sense, I’d like to know a bit more about the stats. How are they measuring online sales? Are they looking at the growth rates at the big etailers like Amazon? Or the big online/offline retailers like Best Buy? How are they capturing the diverse universe of online sales that now take place on specialty sites?
The rise of the search engines and the maturity of the ecommerce model have greatly diversified the online retail space. Before we declare a “slow-down” I’d like to know that we’re measuring the right things.
While it may be alright to look at every sales channel separately and have a separate marketing plan and consumer outreach plan for each, the key to the success of any multichannel retailer will be how well they integrate the plans and the level of synergy that can be obtained by doing so. Retailers cannot be focused on what they do internally–the consumer doesn’t care about that. What they do care about is getting the product they want, when they want it, in the most convenient way, for the best price.
One must be careful when reading the results of the New York Times article. It is not that consumers are no longer purchasing as much online, but rather that the rate of growth for those purchases via the internet is slowing.
As many others have already said, “slower growth” is all relative. Smaller percentage growth only indicates that online retailing is achieving more and more critical mass every year. It will continue to gain market share at the expense of brick & mortar-only retailers for the foreseeable future, and its rate of growth should still exceed consumer spending in total. The definition of “online retailing” will also evolve alongside technology, as it becomes more feasible to shop “online” from your cell phone, not just from your computer. This added layer of convenience may spark another surge of accelerated growth in the future.
This perceived slowdown of online growth was bound to happen sometime and I don’t think this is a negative. As the author points out, in the end it’s all going to the same bucket.
We “classify” so many of our opinions as we navel gaze and make predictions about today’s consumer and the fact is that they are vastly different and their needs/desires may change daily. Yes, I might be a bit blue one day and need some good ol’ retail therapy for the instant gratification of a new find. Tomorrow, I may be too busy to even think about it and simply want to order online, check the box off my to-do list and get on with it.
Yes, we need to understand the channel activity and plan/respond accordingly. But in the end, it’s about giving people choices and ensuring that their needs and preferences are provided for…no matter where they choose to buy.
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The Times piece was indeed flawed. The statistical issues were of concern (Poynter did a great examination of the stats used in the Times piece). But the problem with the story is much broader, namely that it operates on the premise that online and offline are rivals and that if sales in one area goes up, it’s winning and the other one must be losing. That simply doesn’t reflect how major retailers are using this technology and certainly not how they are preparing to use it in the near future.
This gets even more complicated than that because a meaningful definition of an online sale is very difficult to come by. The easiest–and least meaningful and accurate–way is to simply look at where the purchase was made and declare that that’s where the sales credit should go. Consumers today spend hours online and might pick up the item at a nearby store for convenience. The other way around is equally popular. Then there are the truly hybrid sales (an in-store kiosk that is a limited version of the Web site, a smartphone that looks at a 2D image on a display and gets the consumer deep into their E-Commerce site, etc.) On Sunday, we tried to look at the extreme difficulty of isolating online sales and even asked whether it makes sense to try.
The Times, however, found it easier to go with an online-vs.-offline approach. Wouldn’t retailing be a lot easier if things were truly that black and white?
Is the moderating growth of $110+ billion consumer touch point news? Arguably yes, although I think the Times headline writers deserve a bit of re-education in this instance.
The real story is about the cumulative influence that online merchandising, marketing, promotion and selling have had upon retailing overall. It’s a multichannel world (Roger nails this pretty well above) and it’s very difficult to sort out the Web-influenced sales from the pack because they are elements in the same continuum.
Several astute observers above note that physical stores have adjusted their methods in part due to the virtual store influence. Shopping kiosks, cross-channel pickup and return policies, store manager compensation, even merchandising methods have all been revisited. The catalog industry has been largely transformed, and numerous “pure” remote sellers have added physical stores out of strategic necessity (think Dell, Lands’ End).
So what if we have reached the end of the hockey-stick portion of the online sales growth curve? This moment was entirely predictable back when it was a $10B sector. Now that it’s eleven times that size I think we may consider a low-double-digit growth rate significant still. This is not the beginning of the end, folks. It’s just the end of the beginning.
Online shopping was never intended to replace brick & mortar. Numbers can be made to say many things. It is all in the interpretation of the numbers. Susan’s example of numbers in a maturing business is the best way to show what most of us are thinking.
What does this mean for the Amazons and eBays of the world? They need to start looking at growth percentages the way a more mature business looks at it. If they want spectacular growth, then they need to get into new businesses ala GE.
I would start worrying when there is NO growth.
In many progressive retailers, the lines are blurred between online and brick and mortar. People are shopping online before they visit the stores. And they are shopping online after they visit the stores. Where the transaction occurs will soon be irrelevant as retailers integrate their value proposition.
How do you expand the value proposition? Here are some of the basics:
1. Offer web access to your store employees and store visitors.
2. Extend your assortments online.
3. Offer repeat purchase options to online shoppers who buy repeatable items in store.
4. Build virtual communities online for feedback on products they buy.
5. Offer pick up at the local store for online purchases.
6. Offer shipping trackable online for purchases made in the store.
7. Offer online customers previews of markdowns, special buys, and promotions. This will drive store traffic.
8. Integrate your reporting so category performance can be evaluated across channels.
9. Keep track of your sales in a geographic trading area not just physical or online stores.
10. Monitor average sales and number of items purchased in each channel. Notice frequency, too. With high gas prices you’ll be seeing less of them.
Do these things and you’ll care less about increases in separate channels. You’ll be looking at overall increases and improved loyalty.
Although I agree with the others that online sales will continue to grow in the future, it seems to me that the travel business (airline and hotel reservations)has probably matured–and since it is so large in term of dollars–it possibly has had a large impact on total online sales growth rates.
I still enjoy shopping online, since there is often more variety and size selection that seen at retail but I also wonder if the high price of gasoline and other pressures on disposable income has forced consumers back into brick and mortar stores looking for sale prices and clearance markdowns.
Slower online sales growth is not tremendously surprising. Over time, we will see brick-and-mortar and online sales are of equal importance to shoppers. Accordingly, one experience needs to be consistent with the other. Many of today’s IT solutions can help bridge these two mediums together into a consistent experience.
Online shopping has been viewed as the holy grail of shopping business. Certainly, it has been a growing and profitable medium. However, consumers have spoken, and they value many different channels of shopping, besides online. Now, retailers must respond with differentiation and organization.
Is the blossom off online? I don’t think so. It is much easier to get 50% gain from smaller numbers (50% of 20 = 10 no problem but 50% of $2,000,000 = $1,000,000 much harder). We are seeing this channel level out as it matures with not as many aggressive peaks.
It is very important, however, to look at every sales channel separately. To have a separate marketing plan and consumer outreach plan for each. Consumers may not be purchasing online as much but they are doing research online.
It is refreshing though for stores to wake up and smell the coffee! Suddenly they are making the shopping outing an experience, therefore, enticing the consumer to stay and visit often.
The perception of slower growth for online retail sales is somewhat flawed because of the following factors:
1. The larger and more mature the number of cumulative users the smaller the percentages of growth are likely to be.
2. In the beginning cycles of on-line retail sales there were a large number of wannabes, incompetents, and under funded players. As the new economy matures the online consumer will mature, as well, and the growth in numbers will be less impressive, but far more solid.
Overall, it’s still a new economy that will go through many cycles but online retail will be like a good stock that over time will grow up and be very strong.
Let me join the chorus. The absolute percentage of online sales growth will slow (it’s easy to gain double digit growth off a zero base) but the importance of online retailing will continue to grow exponentially for years.
Slower annual sales growth for products sold online is just a matter of the sales channel maturing. While the growth in terms of percent may be slowing, a more realistic figure to look at is the total volume of sales in dollars.
The growth rate of Internet sales may slow, but the influence of the web on retail sales will continue to explode. That’s because the use of the Internet for pre-shopping, comparison shopping, browsing and choosing a store (or web site) destination is growing more important, not less, even (or especially) if the purchase is not completed online.
This is the biggest trend, today and for years to come, in the retailing industry, and why I publish, consult and speak about Integrated Retailing.
Retailers need to integrate their in-store and online environments to drive traffic, provide consistent service and customer experience, get a unified view of markets and merchandise, and to increase sales, profits, market share and stock price. This is what will separate winners from losers, the profitable from the unprofitable. (In fact, the retailers I have identified as being industry leaders in multi-channel integration have seen their share prices rise an average of 30% over the last year.)
E-tailing does not replace bricks-and-mortar retailing, it complements it. It’s an extension of consumers’ in-store experience (or should be). It’s a resource of information, comparison shopping, and consumer reviews and rankings. 87% of consumers shop online before buying offline, and credit the Internet with improving their in-store shopping experience.
At present, online research influences about $400 billion in in-store sales annually, but is on pace to surpass $1.1 trillion by 2012. Multi- or cross-channel shoppers shop more, spend more, have more to spend (being somewhat richer, more educated, etc.), and are the most desirable consumers.
All good points above, and the ROBO phenomenon (research online, buy offline) is finally getting its due as a critical strength of online advertising.
But before we even go to all the reasons why this slowdown makes sense, I’d like to know a bit more about the stats. How are they measuring online sales? Are they looking at the growth rates at the big etailers like Amazon? Or the big online/offline retailers like Best Buy? How are they capturing the diverse universe of online sales that now take place on specialty sites?
The rise of the search engines and the maturity of the ecommerce model have greatly diversified the online retail space. Before we declare a “slow-down” I’d like to know that we’re measuring the right things.
While it may be alright to look at every sales channel separately and have a separate marketing plan and consumer outreach plan for each, the key to the success of any multichannel retailer will be how well they integrate the plans and the level of synergy that can be obtained by doing so. Retailers cannot be focused on what they do internally–the consumer doesn’t care about that. What they do care about is getting the product they want, when they want it, in the most convenient way, for the best price.
One must be careful when reading the results of the New York Times article. It is not that consumers are no longer purchasing as much online, but rather that the rate of growth for those purchases via the internet is slowing.
As many others have already said, “slower growth” is all relative. Smaller percentage growth only indicates that online retailing is achieving more and more critical mass every year. It will continue to gain market share at the expense of brick & mortar-only retailers for the foreseeable future, and its rate of growth should still exceed consumer spending in total. The definition of “online retailing” will also evolve alongside technology, as it becomes more feasible to shop “online” from your cell phone, not just from your computer. This added layer of convenience may spark another surge of accelerated growth in the future.
This perceived slowdown of online growth was bound to happen sometime and I don’t think this is a negative. As the author points out, in the end it’s all going to the same bucket.
We “classify” so many of our opinions as we navel gaze and make predictions about today’s consumer and the fact is that they are vastly different and their needs/desires may change daily. Yes, I might be a bit blue one day and need some good ol’ retail therapy for the instant gratification of a new find. Tomorrow, I may be too busy to even think about it and simply want to order online, check the box off my to-do list and get on with it.
Yes, we need to understand the channel activity and plan/respond accordingly. But in the end, it’s about giving people choices and ensuring that their needs and preferences are provided for…no matter where they choose to buy.