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In a year where retail industry sales are expected to experience sluggish growth at best, Americans will continue to flock to the Internet for clothing, computers, and even cars, predicted "The State of Retailing Online 2008," the 11th annual Shop.org study conducted by Forrester Research, Inc.
According to a survey of 125 retailers, online retail will continue to be a bright spot in the industry with retail sales rising 17 percent this year to $204 billion.
Forester's definition of retail sales excludes travel, but includes food, beverages, and groceries, as well as the following categories: apparel, accessories, and footwear; appliances and tools, autos and auto parts, baby products, books, computer hardware, software, and peripherals, consumer electronics, cosmetics and fragrances, flowers and cards, gift cards and gift certificates, home furnishings, jewelry, movie tickets, music and videos, office supplies, over-the-counter medicines and personal care, event tickets, pet supplies, sporting goods and apparel, and toys and video games.
Apparel ($26.6 billion), computers ($23.9 billion), and autos ($19.3 billion) will be the largest three sales categories.
The State of Retailing Online 2008: Marketing Report, the first of a three-part series of reports based on the study, was released yesterday morning at Shop.org's Online Marketing Workshop in Scottsdale, Ariz.
"From higher shipping costs to changes in consumer shopping habits, online retailers are not immune to the current economic climate," said Scott Silverman, executive director of Shop.org. "But the fact that online sales will increase substantially this year demonstrates the resilience of the channel and is a testament to the value and convenience most customers find when shopping online."
As the number of people new to the Internet begins to wane, online retailers are constantly struggling between investing in strategies that retain current customers or those that attract new ones. According to the report, online retailers allocate 53 percent of their marketing budgets to online customer acquisition and 21 percent of marketing dollars to online customer retention. However, retailers are finding that traditional acquisition programs such as search engine or affiliate marketing may also serve as retention tools that attract existing customers as well as new shoppers.
"What's spearheading online retail sales growth is a tale of two shoppers that visit the Web for very different reasons," said Sucharita Mulpuru, Forrester Research principal analyst and lead author of the report. "The casual shopper goes online to look for the best price, leveraging the transparency of the Internet to save money. However, more affluent customers appreciate the convenience of shopping online and are not necessarily looking for the best deal. Retailers would be wise to recognize there are significant opportunities within both audiences and should market to them accordingly."
According to the survey, retailers report that search engine marketing continues to be the most effective way to reach new customers, citing 35 percent of sales coming from that initiative. As a result, nearly all (90 percent) online retailers surveyed use pay-for-performance search placement, and 79 percent said they will make this tactic an even greater priority this year.
Companies are also using offline marketing tactics to drive customers to the Web, with catalogs and other direct mail pieces taking priority over methods like television and newspaper advertising.
Though free shipping offers have proven to get some consumers over the obstacle of shopping online in the past, the study showed that retailers are less interested in promoting free shipping options this year. While 85 percent of online retailers said they used some shipping with conditions promotions in the past, just 35 percent said that they would focus more on these types of promotions in 2008.
Instead, retailers are eager to experiment with social computing initiatives to attract customers -- 65 percent and 55 percent of retailers respectively said that social network advertisements and widgets would be categories of increased focus this year.
However, social computing efforts to this point have been considered more effective for brand-building and less proven for driving revenue or sales conversion. Therefore, the report advises retailers to continue investments in proven techniques like e-mail marketing and free shipping promotions to drive sales.
Shop.org is a division of the National Retail Federation.