Originally Published: September 2005
As we prepare to enter the busy holiday shopping season (and yes it is right around the corner), most researchers are forecasting a rosy outlook for online retail sales – as long as gas prices don’t get in the way. Because e-commerce spending has been on the rise for all of 2005, most industry experts are predicting that trend to continue, which will translate into a healthy online shopping season.
The Commerce Department recently released its second quarter 2005 U.S. online retail sales numbers. The report revealed that second quarter online spending increased to $19.8 billion, which is significantly higher than last year’s second quarter spending of $15.75 billion. The $19.8 billion is also approaching the $21.52 billion that, according to the Commerce Department, shoppers spent online for last year’s fourth quarter holiday shopping season (by far the busiest quarter of the year). For all of 2005, eMarketer expects online retail sales to increase 22.1% over last year’s $69.2 billion to reach $84.5 billion. Shop.org and Forrester Research’s The State of Retailing Online 8.0 report agrees that online retail sales will be up 22% over 2004.
Of these billions of dollars in online sales, The State of Retailing Online 8.0 report predicts that products largely purchased by women will experience accelerated growth as more and more women use the Web for shopping. The online retail categories expected to see significant growth are cosmetics and fragrances (33% growth over 2004), jewelry and luxury goods (31%) and flowers, cards and gifts (30%).
However, lofty holiday season online sales predictions must be tempered with recent events that have caused rising gasoline and heating oil prices, climbing interest rates and general retail market uncertainty caused by low consumer sentiment. As such, The National Retail Federation is predicting 5% growth in overall retail spending this holiday season over 2004. While 5% is decent growth, it is significantly lower than last year’s 6.7% growth over 2003. Ernst & Young agrees that this season will see a slight slowdown over the 2004 holiday shopping season at 6% to 7% growth versus last year’s 8.3% growth. Even with these tempered projections and the uncertainty in the marketplace, The National Retail Federation believes the strong second and third quarter 2005 may mean a solid holiday season. In addition, these predictions may cause retailers to lower their prices to spur early season sales, which may eat into retailer profit margins but will make shoppers happy. Moreover, these market factors may actually be good for online retailers as rising gas prices may drive more shoppers online versus running all over town to find that perfect gift.
To spur holiday sales, eMarketer reports that holiday shoppers will be frequently offered free shipping, even more so than during previous holiday seasons. According to the report, more than 60% of U.S. online retailers plan to use free shipping this year as a reward and incentive for return customers. eMarketer expects other loyalty programs including value-added promotions, online-only sale prices and repeat buyer discounts to appear this holiday season. As consumers increasingly scrutinize their purchases and whom they buy from online, they will continue to heighten expectations of the online shopping experience. Some decision factors for choosing an online retail website this holiday season include price, product selection, ease of use, low shipping costs or free shipping, previous site registration/returning customers and trust in the brand name of the products or company.
Researchers agree that the 2005 holiday shopping season will be the most successful ever for online retailers. While the general retail industry will see a slowdown in growth due to energy prices, as well as other external factors, online retailers may be the beneficiary of those same impediments as buyers turn to the Web instead of driving all over town. Overall, the forecast for this holiday shopping season is mostly sunny with a chance of a cloud or two. Have you finished your shopping list?
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