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E-Commerce - Color It Green

There's good news for e-commerce entrepreneurs - a new industry report says that a majority of American retailers reported profitable online operations last year.

In fact, the Shop.org annual study, entitled "The State of Retailing Online 5.0," says that fully 56 percent of retailers reported online profits in 2001, compared to only 43 percent in 2000. Multi-channel retailers are at the head of the pack in profits.

The study, conducted by The Boston Consulting Group with market-sizing data supplied by Forrester Research, also found that online retailers are competing in a larger market as consumer online spending in 2001 grew by 21 percent to an estimated $51.3 billion.

And for this year, the study predicts a 41 percent increase in consumer spending online to $72.1 billion.

Shopping online is clearly becoming a mainstay of retailing. Out of 15 categories studied, sales in seven, including computer hardware and software, books, music and video, toys, and consumer electronics, accounted for more than 5 percent of all retail sales for those categories, with some category penetration as high as 17 percent.

"Consumer adoption of the online channel has reached critical mass, and retailers have been able to respond by turning this trend into profits," said Elaine Rubin, chairman of the Washington, D.C.-based Shop.org.

"This is all the more remarkable in a year like 2001, which experienced a weakened economy," she said. "Multi-channel retailers, who are driving much of this profitability, are achieving this goal by creating shopping experiences that take advantage of multiple channels and contact points."

Multi-channel retailers would seem to have an advantage, the study found, as their share of online revenues increased to 67 percent in 2001, up from 54 percent in 2000.

What's driving profits in addition to market growth? The study found that profit indicators include continued performance improvements in marketing efficiency, an increase in the number of repeat online buyers and tighter expense control.

Marketing efficiency has increased significantly resulting in marketing costs per order falling from $20 in 2000 to $12 in 2001 and customer acquisition costs down from $29 in 2000 to $14 in 2001. Repeat buyers now account for over half of sales, with 53 percent of revenue in 2001, up from 40 percent in 2000.

"2002 is likely to be the beginning of a profitable era in online retailing," said Michael Silverstein, senior vice president of BCG's consumer practice. "Not only will retailers continue to improve marketing effectiveness, but they will also have opportunities to realize efficiencies in supply chain and product fulfillment. We will also see strong top-line growth, especially from store-based and catalog-based retailers as they take customer relationship management and targeted marketing to the next level ..."

The study is based on data from more than 100 retailers who participated in a detailed survey, including store-based, catalog-based, and Web-only retailers.

Founded in 1996, Shop.org became a division of the National Retail Federation in January 2001.