A new study from trade association Shop.org predicts that sales from online retailing will almost double, jumping from US$33.1 billion in 1999 to US$61 billion this year.
The study, which was conducted by The Boston Consulting Group for Shop.org, surveyed 412 online retailers. The report found that business to consumer revenues grew 120 percent from 1998, and now represent around 1.4 percent of all retail sales.
The news comes at a dark time for online retailers. Tech firms have been some of the hardest hit in the recent stock market downturn. Earlier this month auditors and accountants for Web grocer Peapod, medical Web site Drkoop.com and music seller CDNow, all issued statements questioning those companies ability to continue as a going concern. A recent report for Forrester Research predicted that a large percentage of online retailers will be out of business by 2001.
"The rest of this year promises to be a roller-coaster for e-commerce companies," said Donna Iucolano, chair of Shop.org's committee on Internet research. "However, those companies with a strong consumer focus and an eye toward maximising profits will come through unscathed."
Those companies may also be getting a bigger slice of the pie. The study found that two-thirds of all online sales came from the top 50 companies, and analysts predicted that the consolidation will continue.
There are signs that online retailers are making significant inroads into offline sales. The study predicts that by the end of the year, the computer, book and music and video categories will have reached at least ten percent penetration versus offline retailers.
But some of those Internet pure-plays may be paying a lot for those customers. The study found that customer acquisition costs jumped 15 percent in 1999, and online retailers are paying more to get them -- US$82 per customer versus the US$38 industry average per customer. In fact, acquisition costs for multi-channel retailers, those who operate bricks-and-mortar stores or catalogues as well as Web sites, actually decreased slightly to US$11 per customer.
"A big part of the story is the dramatic spending to increase customers base. Many times this is being done in an unprofitable way," said David Pecaut, senior vice president at Boston Consulting Group. He said that online retailers were also spending more on marketing and advertising per customer. "Those kinds of changes may seem small but may mean a difference between losing and making money."
