Online retail sales in 2007 reached $175 billion, a 21% increase over 2006, Forrester Research says. This is the first significant drop in growth after years of around 25% growth. And according to Forrester projections, it will be far from the last.

Online retail sales in 2007 reached $175 billion, a 21% increase over $144.6 billion in 2006, according to a new report from Forrester Research Inc. This is the first significant drop in growth after years of around 25% growth. And according to Forrester Research projections, it will be far from the last.

The firm forecasts: $204 billion in online retail sales in 2008, 17% growth over the previous year; $235.4 billion in 2009, 15% growth; $267.8 billion in 2010, 14% growth; $301 billion in 2011, 12% growth; and $334.7 billion in 2012, 11% growth.

While on the surface, declining year-over-year growth percents for online commerce may represent a maturation of the e-commerce industry, it is important to also recognize the industry will add approximately $30 billion in additional revenue every year for the next five years. This is a sizable amount, says Sucharita Mulpuru, principal analyst, retail, at Forrester Research, and lead author of the report, U.S. E-commerce Forecast: 2008 to 2012.

The growth rate remains significant. And a variety of factors are driving it. E-commerce continues its double-digit year-over-year growth rate in part because sales are shifting away from stores and in part because online shoppers are less sensitive to adverse economic conditions than the average U.S. consumer, the report says.

But challenges lie ahead. The report cites three major hurdles e-retailers face as the growth rate of online sales decreases: most consumers still prefer stores, the web channel is becoming increasingly seasonal, and online shoppers tend not to browse.

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The in-store experience is, for most customers, categorically better: It is immediate, tangible and social. And by shopping in stores, consumers can touch and feel items, avoid issues surrounding returns, and avert pesky shipping costs, the report says. And seasonal businesses have notorious challenges in managing every aspect of their business, from their merchandise to their employees to their cash flow. These conditions could prove to be choppy waters for online retailers as the industry matures.

And while web stores offer a wide variety of products, online shoppers generally are not browsers, the report adds. While catalogs can often serve to drive customers to new products or stores, it says, the spear-fishing mentality of most online shoppers means there is less opportunity for retailers to effectively drive higher average order values or units per transactions.

To continue to grow their sales as the overall growth rate of online sales decreases, e-retailers must devise new strategies, Mulpuru says.

Growing international sales is one opportunity, especially given the weakness of the dollar at this point in time, she says. And retailers still need to fix the user experience, employing more tools like rich Internet applications or alternative payments or more robust cross-sell tools. The user experience online still is largely subpar and improvement there alone can help many e-retailers grow.

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