Shoppers Flock to the Web

U.S. online retail sales increased a strong 51 percent in 2003, as vendors on average improved their bottom line, according to a survey conducted by Forrester Research on behalf of Shop.org, the Internet sales division of the National Retail Federation.

It was also the first year in which U.S. online retail sales exceeded $100 billion, reaching $114 billion. That represents 5.4 percent of all retail sales.

There was solid growth across all retail categories, particularly travel, home and office, and computer hardware and software, according to the survey, whose results were released this week.

Meanwhile, online retailers collectively raised operating margins to 21 percent in 2003, up from break-even in 2002, an impressive increase, says Scott Silverman, executive director of Shop.org. By online retailer, the survey refers to vendors that only sell via the Web and to the online units of vendors that also sell offline, he says. Moreover, 79 percent of all online retailers were profitable in 2003, up from 70 percent in 2002.

"The revenue growth was strong in 2003 and the profitability is coming along nicely," Silverman says.

More Growth to Come?

Helped by strong sales in areas such as health and beauty, apparel, and flowers, cards, and gifts, U.S. online retail sales are expected to grow 27 percent this year to $144 billion, or 6.6 percent of total retail sales.

These figures, however, don't reflect the impact of the online channel on overall retail sales. Survey respondents say they believe that 24 percent of offline sales in 2003 were influenced by the Web, up from 15 percent in 2002. Thus, retailers continue integrating their online and offline channels by, for example, letting buyers return products bought online at a physical store and promoting their offline stores at their Web site and vice-versa.

Forrester surveyed 150 retailers, including those that sell only from Web sites, and those that sell from Web sites and from offline channels, such as stores and catalogues.