Monday, November 10, 2008

Online Shopping Growth Stunted

Failing Economy Halts Online Shopping Growth
by Sarah Mahoney, Monday, Nov 10, 2008 7:00 AM ET


It looks like the sluggish economy has finally gotten its hooks into Internet sales.

The growth in online shopping hasn't just slowed, "it's fallen off a cliff," says Gian Fulgoni, chairman of comScore, which is predicting that e-commerce sales will grow between 6% and 10% this holiday season.  And while any growth at all might sound like a dream come true to suffering brick-and-mortar retailers, it's shockingly low compared to recent years.

Year-to-date, comScore says, online sales have grown 10% to $158 billion--compared to 17% last year, 20% in 2006, and 22% in 2005. Just this year, it has plunged from 19% in the first quarter, 13% in the second, and 9% in the third. Excluding travel, the drop is even steeper, falling to just 5% in September.

"E-commerce has emerged as the earliest warning signal that there's a problem with disposable income," he says, and while national retail figures show steady gains, that is due primarily to inflation in food and gas--"neither of which you can buy online. This price inflation has just sucked all the air out of disposable income, and we're seeing it most in people earning less than $100,000," he says. "It's not a pretty picture." Indeed, people earning less than $100,000 increased their online spending just 3% in the third quarter.

On the flip side, among consumers who earn more than $100,000, "the market meltdown has simply hammered their confidence. They're on pins and needles," he says. About 85% of those in this higher bracket agreed with the somewhat apocalyptic statement "I am more afraid about the economic future than ever before." This group is driving the increase to coupon sites, with 37% more of these shoppers using them than before.

And some categories are actually registering sales declines. Hardest-hit is the apparel, shoe and accessory category, which saw a decline of 3% in online sales in the third quarter; books and magazines, with a decline of 17%; and music, movies and videos, with a drop of 29%.

ComScore's predictions are considerably more grim than what online retailers predict themselves. A study released recently by Shop.org, a division of the National Retail Federation, reports that 56.1% of online retailers expect their holiday sales to increase at least 15% compared to last year (that compares to 77.5% last year.) "Online retailers are resilient, but not immune, to the challenges of this holiday season," the group says in its results.

Sarah Mahoney can be reached at sarah@mediapost.com

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