Online Retail Sales Grew 25% in 2006

LAS VEGAS—Total e-commerce sales in 2006 grew 25 percent year-over-year, according to a survey released Monday at the Shop.org Summit in Las Vegas. The report also shows that the stakes are being raised for retailers to provide a consistently positive, more sophisticated experience as consumers are becoming more discriminating about their interactions online.

According to the 150 retailers surveyed for the second part of “The State of Retailing Online 2007,” the 10th annual Shop.org study conducted by Forrester Research, Inc., top priorities include fixing Web site design and performance issues, improving the efficiency of online marketing, and enhancing cross-channel integration.

“Today’s online shopper is extremely Web-savvy and expects more than ever, forcing retailers to raise the stakes,” said Scott Silverman, executive director of Shop.org. “Companies are investing in new features that will keep customers coming back, and homepages everywhere are getting a major facelift.”

Traditionally, multichannel retailers have focused on contact, communication, and commerce. Silverman said it was time to add one more “C” to the equation: The consumer.

“We must understand the voice of the consumer,” he told conference attendees. “Customers are changing and evolving and so must we.”

Fixing product detail pages will top retailers’ Web site to-do lists for the next 12 months. According to the survey, 88 percent of retailers plan to focus on improving content presented on product detail pages, with 80 percent adding alternative images, 72 percent incorporating lifestyle photography, and 63 percent integrating customer ratings and reviews. Retailers are also focusing on their homepages, integrating top sellers and “what’s new” sections, and making their Web sites more sophisticated, with dropdown menus and rollover lists in navigational areas.

To differentiate themselves from competitors, online retailers are also making customer service a priority, with 33 percent of companies planning to invest more in live chat and 53 percent planning to enhance their guest checkout process within the next year.

“It’s encouraging to see more retailers planning to integrate customer feedback loops into their sales processes,” said Sucharita Mulpuru, Forrester Research senior analyst and lead author of the report. “Many retailers have been relying on site analytics data, which is strong at reflecting paths-to-purchase but typically weak at highlighting vulnerabilities or opportunities for improvement.”

Mulpuru will provide more detail about the report at the summit on Tuesday.

In 2006, online retailers continued to allocate 51 percent of their marketing dollars toward online customer acquisition tactics and an additional 24 percent to online customer retention programs, according to the report. Paid search continued to be the most effective marketing tactic for customer acquisition, and email marketing retained its position as the most effective—and budget-friendly—tool for customer retention.

According to the survey, retailers find that emails about new products are more successful than simple transactional and sale messages. Seventy-three percent of retailers email customers about new products, and 51 percent rated the method as very effective. While Web 2.0 and social computing continue to receive a great deal of attention among senior marketing executives, the survey results indicated that these tools are very much in their infancy as marketing tools for retailers.

Retailers understand the value of operating in multiple channels. Survey respondents said that 43 percent of catalog customers have also purchased from their online store and that 35 percent of online customers have also purchased from their bricks-and-mortar store. Online retailers reported that in 2006, they dedicated on average 18 percent of their marketing spend to cross-channel sales, up from 13 percent in 2005. Typically, such tactics included direct mail initiatives such as catalogs and email programs to drive customers to local stores.

However, more retailers are also leveraging direct print mail as a way to increase online sales. According to the study, 66 percent of retailers measure the success of a catalog by how it increases web sales.

“The perception that catalogs are a dying breed could not be further from the truth,” said Silverman. “For online retailers, catalogs are an incredibly important tool for acquiring new customers and providing current customers with their first look at new products. Retailers understand that many consumers get a catalog in the mail, then buy the item online.”

The State of Retailing Online 2007 is currently available to Shop.org members and can also be purchased directly at http://www.shop.org/soro07.