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 Amazon.com, 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.

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