RealTime IT News

Report: Online Retail on Easy Street

By David Ian Miller

Growth in online retail spending will be healthy over the next few years, but retailers will have to scramble for the attention of a maturing population of online shoppers, according to a forecast by JupiterResearch.

Online retail sales are expected to hit $95 billion in 2006, an 18 percent jump over last year's sales totals, according to the report, which predicts online sales will grow 12 percent annually through 2010, when sales will top $144 billion.

In the near term, the key drivers of that growth will be the addition of new online buyers and increased spending by individual buyers.

However, as the online marketplace continues to mature, new buyers will become less important than the increase in wallet share per buyer.

"Thus, online retail will become even more competitive as retailers are forced to compete for a more stable group of customers rather than an ever-growing one," according to the JupiterResearch forecast. (JupiterResearch and internetnews.com are owned by Jupitermedia.)

Online sales have been growing steadily in recent years. For example, last year, they totaled $81 billion, up 14 percent from the previous year.

But even if sales reach $95 billion in 2006, that's still just 5 percent of the $2.1 trillion U.S. retail market. As a result, the more telling impact may be on the Internet's ability to influence off-line sales.

JupiterResearch estimates online activity will affect nearly half of all U.S. retail sales in 2010. That "presents an enormous opportunity for retailers that embrace a well-integrated multi-channel operational strategy," according to the report.

The universe of online shoppers is split evenly between men and women, although slightly more women (51 percent) are buying online than men.

That ratio is expected to hold steady through 2010, according to JupiterResearch. Women are the main purchasers in home, apparel and family-oriented categories, while men are most likely to buy consumer electronics, PCs and sporting goods.

The growth of broadband penetration in the home has given a boost to online shopping by providing speedy, always-on access. Fifty-five percent of all households have broadband connections, an increase of 43 percent from 2004 to 2005.

However, according to comScore Media Metrix traffic data, most retail site traffic takes place during work hours.

"Consumers have not shifted their behavior to shop online from home as other analysts in the market suggested they would do," according to the JupiterResearch report. "Therefore, retailers should not expect higher from broadband penetration to generate increased sales volume through 2010."

Meanwhile, the report warns, online retailers could face tighter margins as they compete for the attention of online shoppers.

"As online consumers mature and competition increases, online retailers will face added pressure to cut margins to generate top-line sales increase on the order of their recent success."

The Jupiter report is based on market research and data modeling by a team of forecasting analysts.