E-tailing growth slows sales to rise 17 percent Study

E-tailing growth slows, sales to rise 17 percent: Study

While some consumers are shopping online for the best deals, more affluent consumers choose the Internet to find the best selection and for convenience

Tuesday, April 08, 2008

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LOS ANGELES, USA: Online retail sales growth in the United States is slowing, but sales are still expected to rise 17 percent this year, even as consumers cut back on overall spending in the sluggish economy, according to a recent study.

But the Shop.org study conducted byForrester Research also found that retailers are tightening purse strings and pulling back on free shipping offers, with only 33 percent of respondents saying they would focus more on those promotions in 2008.

The projected 17 percent rise in online retail sales, not including travel, would be the first time such growth fell below 20 percent. Still, growth comes on top of a larger base, with $204 billion in sales projected for this year compared with $175 billion last year, when online retail sales rose nearly 22 percent.

The industry has enjoyed explosive growth -- sales rose 44 percent in 2001, for example -- as more Americans have gained broadband Internet access and embraced online shopping. But decelerating growth is expected, as the Internet reaches a point of saturation and as online retail becomes a bigger part of the overall retail pie, said Shop.org spokeswoman Ellen Davis.

"As the overall (sales) number gets higher, it will be harder to achieve the same level of growth," Davis told Reuters, adding that online retail sales will eventually fall to single-digit growth, even as their share of the total retail pie increases.

Last year, for example, online retail sales represented just 6 percent of total U.S. retail sales. In 2008, it is expected to rise slightly to 7 percent.

Apparel is expected to be the largest sales category in 2008, reaping an expected $26.6 billion, followed by computers, at $23.9 billion, and autos, at $19.3 billion, the study found.

The expected double-digit growth in online retail sales comes as U.S. brick-and-mortar retail sales have been falling since early this year. Skittish consumers have pulled back on spending, concerned about a possible recession and hurt by high gasoline prices, falling home values, tighter credit standards and concerns about job security.

"With the U.S. economy struggling, it's interesting to see that online retail is taking on a larger share of the retail industry," Davis said.

While some consumers are shopping online for the best deals and perhaps to minimize trips to the mall, more affluent consumers choose the Internet to find the best selection and for convenience, she said.

But many retailers feeling the pinch are cutting back on free shipping offers, raising its price threshold, or moving to flat-rate shipping, Davis said, adding: "Retailers are trying to keep free shipping from costing them a lot of money, while still providing a service to shoppers."

The study forecast total U.S. online sales growth will slow over the next five years as the channel matures with fewer first-time users.

Online sales in 2009 are expected to rise 15 percent, followed by 14 percent, 12 percent and 11 percent in 2010, 2011 and 2012, according to the study.

Shop.org is a division of the National Retail Federation.

©Reuters

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