Retailers Say Online Shopping is Resilient

Despite a struggling economy throughout most of this year, the majority of online retailers continue to be cautiously optimistic about how their businesses will perform during the next 12 months, according to a Shop.org annual survey.

A total of 72 percent of online retailers believe that the online channel is better suited to withstand an economic slowdown than offline channels, according to The State of Retailing Online 2008: Profitability, Economy, and Multichannel Report.

The 11th annual Shop.org study was conducted by Forrester Research, Inc. The final installment of this three-part report was released Wednesday at Shop.org’s Annual Summit in Las Vegas.

“Internet retailers have good reason for optimism as budget-focused shoppers head to the web for value and convenience,” said Scott Silverman, executive director of Shop.org. “Online retailers are well-positioned to make the best of a potentially lean holiday season.”

About 35 percent of online retailers surveyed said they expect their online business to perform better than expected in the next 12 months, while another 33 percent said they anticipate their online business will perform the same as expected. This optimistic outlook is driven primarily by past results. According to the report, 81 percent of online retailers surveyed reported that their eCommerce business was profitable in 2007, and 75 percent were also more profitable last year than in 2006.

Almost half of the online retailers surveyed said that their average conversion rate in 2007 was higher than in 2006, and that 36 percent of total sales for the online retailers were driven by repeat customers—higher than in 2006. However, due to their outlook for the U.S. economy, 37 percent of survey respondents noted that they’ve lowered their expectations for their online business performance in the next 12 months.

The report advises that online retailers must still execute well to capture possible sales. Additionally, it cautions that those sales may not necessarily be the highest-margin revenue due to increased input costs and the pressure to offer promotions such as free shipping.

“Although the online sales growth rate will be lower than in years’ past because of lowered consumer confidence and credit working against all of retail, the good news is that this growth will still outpace nearly every other sector of consumer spending,” said Sucharita Mulpuru, Forrester Research principal analyst and lead author of the report. “Given that the Web appears to be a preferred channel for many consumers during an economic downturn, retailers would be well served to provide offers that motivate customers to buy, and to encourage the online channel to drive sales in a channel-agnostic manner in order to provide benefits to the entire business.”

The report notes that online retailers are still challenged in creating cohesive customer experiences among multiple sales channels. While many Web teams continue to operate in silos, apart from store and catalog teams, multichannel retailers report that half of online customers also shop in the company’s stores or through its catalogs, exemplifying why online employees should have a vested interest in stores’ performance and vice versa. The report recommends that online retailers devise practical, measurable goals, and incentives to motivate employees in all parts of the company—whether they are tied directly to the Web or not—to promote sales in all channels that the retailer offers.