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E-Tailers Cannibalize Offline Sales

Attention retailers: if you haven't set up an Internet presence, you're not only missing the boat, you're losing valuable market share and sales to your e-tail competitors.

According to a new report from Jupiter Communications, less than 10 percent of online e-tail dollars in 2002 will be incremental. That means e-tailers will be stealing business from traditional channels like brick and mortar stores.

Jupiter is warning Web-shy retailers that they had better get online to leverage offline assets, such as existing customer bases, trusted brand names, customer data, and sales and distribution infrastructures, or face the peril of losing sales to Internet-only merchants.

"With few notable exceptions, traditional merchants' Internet strategies have been paralyzed by indecision and the merchants continue to watch Web upstarts seize the early momentum," said Ken Cassar, a Jupiter Digital Commerce analyst.

"Business leaders have rationalized that sales generated through their Web site will cannibalize sales that they otherwise would have captured in their traditional channel, negating the value of their Internet investment.

"Since Internet sales largely represent sales shifted from traditional channels, the Internet is a threat to existing businesses and must be evaluated accordingly," Cassar said.

Jupiter's latest research indicates that only 6 percent -- or $720 million of the expected $11.9 billion -- of 1999 e-commerce will represent incremental sales or those that would not have occurred otherwise.

The company predicts the percentage of incremental sales will show only a small gain, to 6.5 percent -- or $3 billion of the expected $41.01 billion -- by 2002. The slight surge will be predicated on merchants' ability to target offers and promotions.

Cassar warns traditional retailers who also have a Web identity should be concerned that Internet sales will not be incremental. Merchants' efforts to use the Internet to gain new customers or increase spending from existing customers are slight compared to the risk that existing customers might move to online competitors.

"Merchants must accept that cannibalized sales are better than lost sales," Cassar said.

However, Web pure-plays, e-tailers such as, don't need to be too concerned about incremental sales, Cassar said.

"Internet-only merchants are pretty agnostic as far as where there sales comes from," said Cassar. "It doesn't matter whether it's from incremental sales, shifting sales, or Soupy Sales."

Jupiter also forecasts that product sectors which will spur incremental sales will contain maturity, a low price point, high discretionary basis, high likelihood of impulse purchase and high product counts.

Cassar also advises traditional merchants to blend rather than separate their offline sales efforts with Internet channels, even though the e-tailers may fear issues such as sales tax problems, considerations and a lack of experience in fulfillment and customer service. issues.

Cassar believes that now more than ever e-tailers should marry traditional with Internet resources in order to provide a buying experience that boosts the specialties of each channel. The channels, Cassar said, should enjoy a symbiotic relationship in which one benefits the other, and the combination can create an entity that is far more valuable than the sum of its parts.