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Net_Retailers_Face_45_Percent_Growth_in_Market
| Net Retailers Face 45 Percent Growth in Market
On the day I write this column, Spaceworks, another promising
Internet company has closed its doors. The fever that once
encouraged business writers to claim dot coms would quickly
overcome and obliterate traditional businesses, is now burning
against Net companies. Now it's fashionable for journalists to
scoff at Internet enterprises, ridiculing excesses such as the
goofy 2000 Super Bowl ads.
Ok, we've all had fun with the media backlash, now let's regain
our bearings. Amid the stories of the dot com demise, there is a
hidden stream of positive reports showing a growing base of
Internet consumers willing to spend ever greater amounts online.
Is anyone covering this story?
Report after report shows a growing population of Internet
shoppers. High-speed connections are finally catching fire.
Cable modems are booming and telecom companies are struggling to
keep up with the demand for DSL installations. Analysts are
saying nice things about Amazon.com's chances of hitting
profitability later in 2001. Some bad news.
One recent piece of good cheer arrived in the form of "The State
of Online Retailing 4.0," a new Shop.org study conducted by The
Boston Consulting Group. The quiet-but-powerful headline of the
report reads, "The North American online retail market is
expected to grow 45 percent in 2001, reaching $65 billion." Not
bad growth statistics, especially since we're supposedly in the
throws of a complete collapse of the Internet economy.
Apparently, online retailers continue to improve their
functionality while journalists report that Rome.com is burning.
"While consumer demand continues to propel growth, online
retailers have wrestled with operational issues. They're
improving their performance in key areas such as customer
acquisition and buyer conversion, " said Elaine Rubin, chairman
(sic) of Shop.org.
She goes on to point out the weakness of some Net companies that
contributed to the very real crash among some of the
ill-prepared dot coms. "There is a steep learning curve in
becoming an online retailer - those players that were unable to
excel in all facets of this complex business just didn't make it
to the end of 2000."
Among those retailers who did survive, the news continues to
improve. The report finds that online retailers have been able
to reduce their losses as a percentage of revenues. Operating
losses decreased as a percentage of revenue from 19 percent in
1999 to 13 percent in 2000. As for the elusive profitability,
even more happy tidings. By Internet retail type, 72 percent of
catalogers (sites owned by offline catalogs), 43 percent of
store-based retailers (sites owned by brick stores) and 27
percent of Web-based retailers (Net-only retailers) are
profitable at an operating level.
The report finds that the movement toward profitability is due,
in large part, to online retailers placing tighter controls on
their marketing budgets. You think?. As a result, customer
acquisition costs for all online retailers fell from an average
of $38 in 1999 to $29 in 2000. Web-based retailers (the
stickiest of the wickets), in particular, were able to bring
them down from a high of $82 (ouch) to $55 (still not great)
over the same period. The best-performing Web-based retailers
(the top 50 percent) reduced acquisition costs to an average of
$14 (yea!) per customer rivaling the performance of
catalog-based retailers.
The report concludes that Internet retailing is alive and very
much healthy. Yet it also warns that each category of Internet
retailer still has plenty to learn about running online stores.
"Web-based retailers need to learn the basics of retailing,"
said Peter Stanger, vice president and leader of Boston
Consulting Group's business-to-consumer topic area. "Store-based
players are new to home delivery and selling to consumers
one-on-one from a distance. Catalogers have a leg up in many
dimensions, but they need to perfect ways to exploit the
relationship-marketing opportunities. The winners will be those
companies that can most effectively acquire or develop the
capabilities they lack and integrate them with their existing
strengths." Amen.
Hats off to the Net boom. They say the king is dead. We say,
long live the king.
About the author:
Rob Spiegel is the author of Net Strategy (Dearborn) and The
Shoestring Entrepreneur's Guide to the Best Home-Based
Businesses (St. Martin's Press). You can reach Rob at
spiegelrob@aol.com.
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