Study: Online Retail Sales Doubled Last Year

FRAMINGHAM (04/18/2000) - Online sales in North America more than doubled last year to reach $33.1 billion, according to a new study of online retail activity.

The study, released yesterday by Shop.org and The Boston Consulting Group, predicted the North American online retail market will reach $61.1 billion by the end of the year, an 85 percent increase.

Electronic retail sales grew by 190 percent percent in 1998 and by 120 percent last year, the study said.

Travel, computer hardware and software and financial brokerage services led retail e-commerce last year, accounting for $20.1 billion in online sales, the report said.

Much of the growth in online sales was driven by manufacturers moving toward direct sales to consumers and by brick-and-mortar retailers entering the e-commerce market, said David Pecaut, an analyst at The Boston Consulting Group in Toronto.

"The traditional retail business continues to make a comeback in the Internet space," he said.

Manufacturers selling direct accounted for 15 percent of online product sales last year, he added.

The study was based on data from Silver Spring, Maryland-based Shop.org, an e-commerce retail trade association with more than 400 members. It was also based on an in-depth survey of 221 online retailers.

The study found that while the e-commerce market is dominated by the 50 largest online retailers, which had 67 percent of total sales last year, the top 10 retailers' share fell from 43 percent in 1998 to 38 percent last year.

Customer acquisition costs nearly doubled for so-called pure-play retailers, rising from $42 per customer in 1998 to $82 last year, according to the report.

Customer acquisition costs for multichannel retailers, however, fell sharply, from $22 to $12, said the report, entitled "The State of Online Retailing 3.0."

The demographics of Internet customers underwent a "striking shift" last year, the report said. The online population is beginning to look like the traditional off-line customer base - becoming older, increasingly female, less affluent and less well-educated.

The good news for electronic retailers, according to the report's authors, is that there is plenty of room for growth. Although the order conversion rate grew from 1.5 percent to 1.8 percent last year, and the customer conversion rate grew from 2.8 percent to 3.2 percent, approximately 65 percent of electronic shopping carts were abandoned before purchase, the report said.

Turning those abandoned shopping carts into completed orders will require online retailers to better meet consumers' needs and desires, Pecaut said.

"There will be a flight to quality," he said. "It will be led by those sites that can meet customers' high demand for quality."

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