2007 Online Retail Sales Surge to $175 Billion

Online retail sales in 2007 reached $175 billion, a 21% increase over $144.6 billion in 2006, according to a new report from Forrester Research Inc.

This is the first drop in growth after years of around 25% growth. And according to Forrester Research projections, it will be far from the last. The firm forecasts: $204 billion in online retail sales in 2008, 17% growth over the previous year; $235.4 billion in 2009, 15% growth; $267.8 billion in 2010, 14% growth; $301 billion in 2011, 12% growth; and $334.7 billion in 2012, 11% growth.

“While on the surface, declining year-over-year growth percents for online commerce may represent a maturation of the e-commerce industry, it is important to also recognize the industry will add approximately $30 billion in additional revenue every year for the next five years. This is a sizable amount,” says Sucharita Mulpuru, principal analyst, retail, at Forrester Research, and lead author of the report, “U.S. E-commerce Forecast: 2008 to 2012.”

The growth rate remains significant. And a variety of factors are driving it. “E-commerce continues its double-digit year-over-year growth rate in part because sales are shifting away from stores and in part because online shoppers are less sensitive to adverse economic conditions than the average U.S. consumer,” the report says.

But challenges lie ahead. The report cites three major hurdles e-retailers face as the growth rate of online sales decreases: most consumers still prefer stores, the web channel is becoming increasingly seasonal, and online shoppers tend not to browse.

“The in-store experience is, for most customers, categorically better: It is immediate, tangible and social. And by shopping in stores, consumers can touch and feel items, avoid issues surrounding returns, and avert pesky shipping costs,” the report says. “And seasonal businesses have notorious challenges in managing every aspect of their business, from their merchandise to their employees to their cash flow. These conditions could prove to be choppy waters for online retailers as the industry matures.” And while web stores offer a wide variety of products, online shoppers generally are not browsers, the report adds. “While catalogs can often serve to drive customers to new products or stores,” it says, “the spear-fishing mentality of most online shoppers means there is less opportunity for retailers to effectively drive higher average order values or units per transactions.”

To continue to grow their sales as the overall growth rate of online sales decreases, e-retailers must devise new strategies, Mulpuru says.

“Growing international sales is one opportunity, especially given the weakness of the dollar at this point in time,” she says. “And retailers still need to fix the user experience, employing more tools like rich Internet applications or alternative payments or more robust cross-sell tools. The user experience online still is largely subpar and improvement there alone can help many e-retailers grow.”

875 Million (and growing) Potential HomeATM Users!

Over 875 million consumers shopped online worldwide in 2007, according to a survey by The Nielsen Company.

This represents a 40 percent increase in the number of Internet shoppers over the last two years, the U.S.-based market research firm says.

“When Nielsen conducted its first global survey into Internet shopping trends two years ago, around 627 million people had shopped online,” Bruce Paul, Vice President of Customized Research at Nielsen U.S., says. “Within two years, this number has increased by 40 percent to 875 million.”

According to Nielsen’s survey, which was conducted in October 2007, over 85 percent of the world’s online population has used the Internet to make a purchase. Globally, more than half of Internet users made at least one purchase online in January 2008, Nielsen estimates.

Among Internet users worldwide, the highest percentage shopping online is found in South Korea. Nielsen says 99 percent of South Korean Internet users have shopped online, followed by the UK, Germany and Japan in joint second place, each with 97 percent. The U.S. came eighth, with 94 percent of Internet users having shopped online.

Credit cards are by far the most common method of payment for online purchases. Nielsen says that 60 percent of global online consumers used their credit card for a recent online purchase, while one in four online consumers chose PayPal. Of those paying with a credit card, more than half (53 percent) used Visa, Nielsen says.