Online Retailing to Reach $36 Billion in 1999

The rapid growth of online retailing in North America continues, with revenues expected to top $36 billion by the end of the year and a projected growth rate of 145 percent in 1999, according to a study by Shop.org and The Boston Consulting Group.

The study is based on data from 328 online retailers, 158 of which participated in a detailed survey. The study also found that total 1998 online revenues across all categories reached $14.9 billion, representing 0.5 percent of all retail sales. Online orders in 1998 were up 200 percent and the number of online shoppers was up 300 percent, according to the survey.

“Most people think e-commerce is mainly being done by Web-only businesses, but 62 percent of the $14.9 billion of online revenues in 1998 were from retailers who had businesses that predated the Web. These catalog, call centers and brick-and-mortar retailers are a growing force behind the continued rapid growth of online retail,” said David Pecaut, Senior Vice President of The Boston Consulting Group and leader of its E-Commerce Practice.

The Shop.org/BCG study compares multichannel retailers — those with brick-and-mortar, call center or catalog operations who also sell online — with “pure-play” retailers who sell strictly online. A number of key differences are cited:

Currently, pure-play retailers are dominant in the collectibles (person-to-person auctions), books, music/video and automotive categories. In categories such as financial brokerages, consumer electronics, apparel and computers, the majority of sales are from multichannel retailers.

Because multichannel retailers have the advantage of an existing brand and infrastructure, they are more recognizable than online-only competitors in some areas. But online-only retailers have begun using aggressive online and off-line marketing and advertising campaigns to build their own recognizable brands, the survey found.

The two channels work the Web differently, with online-only retailers generating 6 percent of revenues from affiliate sites, compared to only 1 percent for multichannel retailers.

Pure-play retailers earned 12 percent of revenues from high-margin supplemental sources versus less than 1 percent earned by multichannel retailers, the study found.

Customer acquisition costs for online-only retailers are $42 per customer, almost double that for multichannel retailers at $22 per customer.

While multichannel retailers spend heavily on customer retention (16 percent of their marketing and advertising budget), online-only retailers spend only 3 percent on retention, devoting most of their resources to customer acquisition.

Online-only retailers tend to outsource back-office functions such as managing inventories and filling orders, while multichannel retailers more often outsource Web site development and maintenance.