Online retailers expected to make a profit in 2002

A new study by Shop.org predicts that the online retailing industry as a whole may achieve profitability by the end of this year.

A new study by Shop.org predicts that the online retailing industry as a whole may achieve profitability by the end of this year.

The report, The State of Online Retailing 5.0, said that large retailers with a Web presence will lead the profitability wave, while Web-only retailers will lag behind.

"The popular belief is that the online retailing sector is a dismal failure," said Elaine Rubin, executive director for Shop.org, the online arm of the Washington-based National Retail Federation. "But the truth of the matter is that retailers online are making money, and consumers are embracing the online channel."

Those results match what Chris Merritt, a consultant at Kurt Salmon Associates, is seeing. He said big retailers with an online presence and those Web-based companies selling computer products are making money but online-only operations are lagging behind.

Merritt said retailers with other methods of selling to customers, such as stores or catalogue order businesses, don't have to spend the marketing and advertising dollars that pure Internet operations do. It's a simple formula: Their costs are less so they make more money, he said.

Rubin said the advantage that bricks-and-mortar operations have over Web-only operations in terms of brand-name loyalty and recognition cannot be underestimated.

The report also showed that 3.1% of all visits to a Web site result in a sale, which Rubin called respectable. She did not have comparable statistics for sales at bricks-and-mortar stores.

Merritt said that in catalogue sales, a return in the range of 3-5% was about average for those catalogues sent to what are called "in-house lists". An in-house list is composed of customers who have made purchases from the company in the past. The return for customers who receive a catalogue for the first time and have never made a purchase is about 1%, he said.

Merritt said that comparison only goes so far, because in the case of catalogue sales, the customer is prompted to buy when a new catalogue arrives in the mail, while on the Web the transaction is relatively passive because there is no trigger to prompt users to make a purchase.

Other highlights of the survey include the following:
  • 53 % of all customers on the Web are repeat buyers.

  • 5% of all retail sales and 18% of all computer and hardware sales take place online.

  • 56% of the 100 major retailers surveyed reported they were profitable.
The report was conducted by the Boston Consulting Group with market-sizing data provided by Forrester Research.

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