E-tailers endure dotcom downslide

The gloomy economy is unlikely to deter consumers from shopping online, a study by Shop.org, an association of electronic...

The gloomy economy is unlikely to deter consumers from shopping online, a study by Shop.org, an association of electronic retailers, and The Boston Consulting Group claimed. Online retailers in the US expect sales to soar 45% this year.

Despite dotcom doldrums, North American online retail sales grew 66% last year to almost $45bn (£31bn), and are expected to reach $65bn by the end of this year, according to the study, entitled The State of Online Retailing 4.0.

Travel-related sales led the pack in last year0, reaching $13.8bn, and will continue to grow by half as much again by the end of this year. Growth in book and computer sales will lag over the same period, however, leveling off at 25% and 15% growth respectively.

Although many dotcoms have suffered over the past year, online retailers have been able to narrow their losses and increase their ability to draw consumers, the study states. In effect, these "e-tailers" have become leaner and meaner, cutting operating losses as a percentage of revenue from an average 19% in 1999 to 13% in 2000.

Although the report said that online retailers have strengthened their performances overall, there are distinct differences between click-and-mortar and pure Web-based retailers. Whereas 72% of catalogers were profitable at an operating level in 2000, just 43% of store-based retailers could boast the same, and only 27% of Web-based retailers kept on top of their profit game.

These companies' increase in profits were largely because of their ability to keep a handle on their marketing budgets and how they nipped costs related to attracting customers. Those expenses dropped from an average of $38 in 1999 to $29 in 2000 for all online retailers. Web-based vendors went a step further, however, chopping their costs spent luring customers from $82 to $52 over the same period.

"[Online retailers] are not in infancy; we have moved to the toddler stage and have started to conquer the basics now," said Elaine Rubin, chairwoman of Shop.org. "We have become much smarter and a lot more experienced."

To keep strong results, store retailers will have to manage their retail channels, and Web players will need to focus on their niche markets or seek partnerships to make up for their online cost disadvantages and weaker brands, the study said.

The study predicts that an expansion of the online retail market will open the door for general merchandise, where sales may increase in categories such as home and office products, as well as clothing and toys.

The study was based on data from 550 retailers, 156 of which provided detailed information. This year's study excluded financial brokerages.

The Boston Consulting Group: http://www.bcg.com/home.asp/ .

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