Report: 2006 marks another year of stellar online sales growth

Online sales are expected to top $200 billion this year—a two-fold increase in spending from just three years ago, according to an annual report.

“The 2006 State of Retailing Online,” the ninth annual Shop.org study conducted by Forrester Research, Inc. of 174 retailers, concludes that 2006 online sales (including travel) are expected to rise 20 percent to $211.4 billion. Sales excluding travel will reach $138 billion.

The largest non-travel categories this year will include computer hardware and software ($16.8 billion), autos and auto parts ($15.9 billion), and apparel, accessories, and footwear ($13.8 billion), according to the report. Pet supplies and cosmetics and fragrances are expected to experience growth rates of more than 30 percent, more than any other category.

Online sales in 2005 rose 25 percent to $176.4 billion. Excluding travel, online retail sales rose 28 percent to $113.6 billion, representing 4.7 percent of total “retail sales,” including jewelry, in 2005. (The end of the article lists categories defined as retail sales in this survey.)

Retailers are continuing looking for ways to use Web sites to not increase online sales, but to increase in-store sales, which is known as a multichannel retail environment. To create a true multichannel environment, retailers are employing a variety of different strategies. More than two-thirds of retailers have consistent pricing across channels (79 percent) and almost half (46 percent) allow their customers to buy and redeem gift cards online and in stores. A notable number of companies give customers the ability to accrue loyalty program points across channels (33 percent) and offer in-store product information online (26 percent).

“By encouraging different channels to work together, instead of in isolation, everybody wins,” said Scott Silverman, executive director of Shop.org, and association of online retailers and a division of the National Retail Federation. “Retailers have been focusing on integrating their Web sites and stores to better serve their customers, which is paying off for companies in the form of higher sales.”

Retailers recognize the importance that the online channel plays in overall sales. In fact, retailers reported that 22 percent of offline sales are influenced by the Web. Web sites can also give retailers an opportunity to reach out to an entire new customer base, as more than one-third (38 percent) of online customers are new to a company’s entire business.

The report says that retailers have spent much of the past year developing long-term forecasts, budgets, and personnel plans. These new initiatives are still in the planning stages and are expected to launch within the next two years.

“Retailers spent the first decade of eCommerce scrambling to react to and learn about the Internet,” said Carrie Johnson, lead author of the report and research director, vice president at Forrester Research, a technology and market research company. “Companies are now able to take a step back and are busy planning strategies and prioritizing technology investment for the long term. As a result of these efforts, the next five to ten years of online retail will be even more competitive and more innovative than in the past.”

(“Retail Sales” exclude travel and include the following categories: computer hardware and software; autos and auto parts; apparel, accessories, and footwear; home furnishings; consumer electronics; music and video; food, beverage, and grocery; appliances and tools; toys and video games; gift cards and gift certificates; sporting goods and apparel; office supplies; books; event and movie tickets; jewelry; flowers and cards; baby products; computer peripherals; over-the-counter medicines and personal care; cosmetics and fragrances; and pet supplies. These are not the same categories that the National Retail Federation tracks; therefore, the numbers are not comparable.)