NETTING IT OUT

Online shopping surged to over 10 percent of all holiday shopping in the United States during the 2004 Christmas holiday season. That’s a watershed event for online retail, which also marks its tenth anniversary this year. The real news on the retail front, however, is the rapid rise in the maturity of multichannel retailing. Online search, comparison, and research plays such an important role in driving traffic to stores that all retailers, no matter what their size, now must have robust eshopping sites with easy-to-search and comprehensive online product catalogs.

Retailers are flocking to the multichannel retail model because it builds stronger customer relationships and higher profits. This is good news for the cross-channel shopper. You can research and buy online, pick up in the store, return at the store or by mail, and expect a consistent customer experience. The ability to do your holiday shopping seamlessly across channels used to be a luxury afforded by only a few retailers, like Circuit City, Best Buy, Nordstrom, and Staples. Now, virtually every major retailer offers increasingly seamless cross-channel shopping. However, delivering a good cross-channel shopping experience raises the level of investment required by retailers--both online and offline--to meet the customer experience challenge.

ONLINE CHRISTMAS SHOPPING ACCOUNTED FOR OVER 10 PERCENT OF ALL CHRISTMAS SHOPPING

During the 2004 Christmas holiday season, online shopping in the United States accounted for over 10 percent of U.S. holiday retail sales. According to the Holiday eSpending report issued on January 3 by Goldman, Sachs & Co., Harris Interactive, and Nielsen//Netratings, U.S. shoppers spent $23.2 billion online during the 2004 winter holidays[1]. This survey is in line with our own estimates that the 2004 Christmas holiday eshopping totals will come in between $23.2 and $23.5 billion.

If we compare those online shopping estimates to the National Retail Federation’s estimate of $220 billion for all U.S. winter holiday shopping, then online shopping rose to 10.5 percent of total winter holiday sales in the United States

If these preliminary estimates bear out, then the 2004 Christmas holiday season will be the first time that online shopping has surpassed 10 percent of total shopping. For years, retail executives have been using 10 percent as the “magic number” for taking online shopping seriously. For retailers whose online sales fall in the 2 to 5 percent range, the cost of ecommerce operations tends to outweigh the benefits--particularly if those benefits are measured only in terms of sales actually booked online.

ONLINE SHOPPING IS NOW 10 YEARS OLD

The holiday shopping season of 2004 also represented an important milestone. It marks the tenth anniversary of online shopping. So it’s fitting that online retail has now passed the important 10 percent threshold. It’s also interesting to note that, despite consumers’ heightened identify theft, security, and privacy concerns, the volume of online sales continues to grow 27 percent year-to-year in the United States.

But Online Shopping Isn’t Online Only

What’s more interesting to us, however, is the coming of age of multichannel shopping that we witnessed in the 2004 holiday season--the amount of shopping that probably began online and was consummated in stores, as well as the shopping that was triggered by the receipt of a print catalog, but took place on the Web, rather than on the phone.

While it’s relatively easy to obtain statistics for retail sales and for ecommerce sales, what’s under-reported is the impact of eresearch on in-store sales. Very few retailers are able to correlate prospects’ online search and browsing behavior with their actual purchases when those purchases occur offline.

Yet today’s consumers are cross-channel shoppers. Many Internet-enabled shoppers do at least part of their research online before venturing into stores. So if you really want to measure the impact of the Web on consumers’ shopping behavior, you’ll miss by a mile if you only measure online sales.

At Least 30 Percent of Holiday Purchases Are Researched Online

We believe that at least 30 percent of Christmas holiday purchases were researched online, although a little more than 10 percent were actually purchased online. That additional 20 percent is the “online research” factor--the comparison shopping, research, and browsing that many consumers do before buying gifts.

Online Search, Browsing, Research, and Comparison Shopping Drive Retail Behavior

In the United States alone, there are 202 million Internet users[2]. We believe that 30 to 50 percent of those users did some online research before purchasing either in stores or online. According to an AOL survey of over 6,000 online shoppers conducted in August and September 2004, 48 percent of online shoppers use search tools to expedite their shopping experience. And 69 percent of online shoppers use the Internet to find products and bargains at their local offline stores[3]. These AOL survey respondents said they planned to spend 53 percent of their holiday shopping budget online.

In fact, Hitwise reported that U.S. visits to Web shopping sites (such as Amazon), classified ad listings (including eBay, Craig’s List, et al.), and the Web sites of major retailers (such as WalMart, Best Buy, Target, and Dell) increased 25.6 percent from the holiday season a year ago.

The online traffic pattern was also interesting. Shopping traffic hit the online etailers first--Dell, eBay, and Amazon saw their largest peaks on November 10, December 9, and December 11--early enough to buy online or research online and buy in the stores. Online traffic at conventional retailers’ sites peaked on Thanksgiving day and the day after Thanksgiving--the so-called Black Friday--when many shoppers head to the physical stores. Clearly, shoppers were making their lists and checking features and prices before getting into their cars.

Checking Features, Availability, and Price

Traffic at comparison shopping Web sites was up as bargain hunters compared prices for commonly sought after items, such as cameras and consumer electronics. But our research shows that many online shoppers actually spent more time learning about the features and options of particular products, and checking to see which merchants had particular products in stock, than they did comparing products on price alone. Once consumers had determined which make or model they wanted or what style and size of apparel, they compared prices to ensure that they weren’t overpaying. However, most consumers still tended to purchase from the merchants whose reputations they knew and trusted--either online or, more often, at the physical stores.

Profile of 2003 Holiday Spending (U.S. Retail)

© 2005 National Retail Federation

Illustration 1. In 2003, winter holiday retail spending dwarfed all other holiday retail spending. The National Retail Federation projects 2004 winter holiday spending to reach $220 billion.

Many consumers did their research by going directly to the comparison sites--like CNet, Consumers Reports, or Froogle. Other consumers researched online at the merchants’ or at the manufacturers’ sites, browsing, navigating, and/or searching the sites directly.

However, some shoppers--particularly those who didn’t know exactly where to find certain wares--began their research using a search engine. The most popular of these, of course, is Google.

Online Search Favors Savvy Niche Retailers

When consumers begin their online research by using a public search engine, like Google, it’s often the smart niche retailers who benefit the most. Specialty retailers who have taken steps to show up well on search engines like Google may be among the greatest beneficiaries of the online research craze.

To illustrate the point, here are some examples ...