Report: N. American Online Retailing to Hit $29.3B This Year

Despite the recent decline in venture capital investment in Internet retail
companies, the North American Internet retailing market is on track to
surpass $29.3 billion in 2000, an increase of 75 percent over 1999 revenues,
says a new industry study.

The report from technology research and consulting firm Gartner Group Inc. says that in 1999, North
American Internet retailing revenues totaled $16.8 billion, up 157 percent
from 1998 revenues. As the market continues to mature, Gartner analysts said
the large vendors will begin to emerge from the pack as leaders in this space.

“Online retailers must prepare for the reality of industry consolidation,”
said Robert Labatt, principal analyst for Gartner’s e-Business Services unit.
“Leading companies with strong consumer awareness and branding will have the
upper hand at this time Smaller niche players need to develop partnerships
that drive revenues, not press releases.”

“For the current leaders, this is a time of bargain hunting. Advantageous
partnerships with weaker partners that have strong teams, technology or
customer bases are now available at lower cost,” he said. “In order to
survive, Internet retailers have no choice but to demonstrate the capability
to achieve profitability in the short term.”

In 1999, online retail activity represented less than 1 percent of overall
consumer spending in North America. By 2004, Gartner estimates online
retailing will grow to about 5 to 7 percent of total retail sales in North
America.

The computer hardware/software, consumer electronics segment will continue to
lead the market, with revenue projected to grow from $7.5 billion in 1999 to
$59.7 billion in 2004, Gartner said.

“Despite the size of this opportunity, the real story is that online
electronics and computer retailers are operating at the thinnest of margins
compared with other categories such as banking,” Labatt said. Banking and
financial services are forecast to grow from $3.6 billion in 1999 to $12.3
billion in 2004.

The entertainment and home consumables categories are expected to show the
strongest growth rates through 2004. Gartner analysts said that in the
entertainment category, the increased availability of broadband access will
remove bandwidth constraints and fuel an explosion of audio and video on
demand.

Meanwhile, Gartner issued another report saying that many Web merchants will
continue to be unprofitable because they have failed to grasp the importance
of automated, integrated, real-time back-office fulfillment systems.

In their rush to build Internet sales channels, many Web merchants have not
paid attention to some basic business practices, such as the delivery process
and back-office fulfillment practices.

”Most Internet companies fail to capture the true costs of fulfillment and
delivery,” said Geri Spieler, research director for Gartner’s e-Business
Services. “Many delude themselves into believing that their Web commerce
transactions are profitable. To understand the financial impact of Web
commerce, enterprises must capture the additional back-end costs they are
incurring because of poor processes and third-party relationships.”

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