Future of E-Tail Lies with Multi-Channel Retailers

US business-to-consumer (B2C) sales over the Internet will grow from an estimated $25 billion in 1999 to $152 billion in 2002 and $233 billion in 2004, according to Giga Information Group, which predicts multi-channel retailers will benefit the most from the Internet.

As a share of total consumer spending, Giga estimates Internet sales will grow from 0.4 percent in 1999 to 3 percent in 2004. By 2002, multi-channel retailers will dominate B2C Internet sales after sharing the growth with dot-com merchants and mail-order converts.

“Business-to-consumer Internet sales are still showing robust growth, but with a likely flattening of the growth curve in 2002,” said Andrew Bartels, VP, Giga Information Group. “Consumer use of the Internet for product research will grow, but the majority of sales will still close in stores where consumers can touch products and take them home immediately. This pattern plays to the advantage of click-and-mortar companies that can operate in real-world, telephone, and Internet sales channels.”

According to Giga’s research, more than half of 1999’s B2C sales were handled by dot-com merchants. Although many analysts and investors remain wary of the ability of some dot-coms to survive their excessive burn rates, Giga foresees room on the permanent retail landscape for dot-coms, predicting them to capture $39 billion in revenues in 2002 and $49 billion in 2004.

But the real B2C opportunity lies with multi-channel retailing, according to Giga. Companies with a real-world presence that built Internet sales channels constituted about 33 percent of B2C sales in 1999. Travel companies such as the airlines, brokerages like Charles Schwab and Fidelity, and computer companies like IBM and Apple dominated click-and-mortar sales. However, other click-and-mortar companies, like The Gap, Borders, Wal-Mart, ToysRUs, and Staples, showed evidence of real-world retailers starting to “get” the Internet and compete effectively in this channel.

Giga expects these multi-channel companies will dominate B2C Internet sales by 2002, growing their share of Internet spending to two-thirds of the market by 2002 ($92 billion) vs. one-third in 1999.

For traditional retailers, this analysis is good news. The game is not over, and real-world stores still matter,” Bartels said. “But the winners will be those that master multi-channel marketing and sales, not those that play only in the real-world stores.”

Giga’s research also predicted that the mix of B2C sales over the Internet is likely to change during the next three years. In 1999, more than 75 percent of B2C sales were in just five industries: computers and computer equipment, travel, brokerage, auction, and books and music. By 2002, Giga expects these five industries will account for only about half of B2C Internet sales. New categories, such as auto sales, groceries, toys, gifts, insurance, real estate, and government, will start to become significant. By 2004, Giga predicts online sales of autos and groceries will exceed online travel and computer sales.