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Casting a Wide Net

E-tail surges as customers crave convenience.

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Special Issue
WWD Where America Shops issue 07/15/2008

Online retail is a little like the New York real estate market: still going up while everything else is going down.

This story first appeared in the July 15, 2008 issue of WWD.  Subscribe Today.

The double-digit growth will continue through 2013 as shoppers make greater use of the channel and more stores come online.

Eventually, that growth will slow into the single digits, as online retail is unlikely to get any bigger than 10 to 15 percent of total U.S. sales, said Patti Freeman Evans, an analyst with JupiterResearch in New York.

The number-one reason women shop for apparel and accessories online is convenience, according to analysts and retailers. For example, women shop late at night when the stores are closed and the children are sleeping. Another appeal of the online channel is that it’s searchable, which makes it the first place women turn to when they’re looking for something specific, such as a dress they tried on that wasn’t available in their size, something they saw in a magazine or the Christian Dior shoes Sarah Jessica Parker wore in “Sex and the City.”

“Clearly, convenience” is the reason women shop online, said president and chief executive of Neiman Marcus Direct Brendan Hoffman. It gives them “the opportunity to do it where they want, when they want.” Roughly half of Neiman’s business comes from customers who live outside the store areas. Those who do live nearby purchase when they are at work or can’t get to a store, he said. “We’re seeing a lot more [sales activity] at night, after they’ve put the kids to bed.”

The customer is responding to must-have product, and the retailer sees a definite spike of interest — including calls — when an item appears in a magazine or movie.

The need for speed doesn’t apply only to those with big budgets. At ShoeMall.com, for example, an online-only store that opened in 1999 and features 18,000 styles from brands such as Easy Spirit and Kenneth Cole, the typical customer is “an Internet-savvy woman shopper who doesn’t have a lot of time; she knows what she wants,” said Jodi Bresina, ShoeMall Internet director.

Last year, online retail in the U.S. grew 21 percent to $175 billion, or 6 percent of U.S. retail sales, according to Forrester Research Inc. of Cambridge, Mass. (The figures exclude travel.) This year, online retail is expected to grow to $204 billion and 7 percent of all U.S. retail sales. Mostly the growth will come from taking sales away from other channels. By 2012, e-commerce sales will exceed $300 billion, the firm predicts.

Apparel, accessories and footwear became the number-one category online only in 2006, edging out computer-related products, which had dominated for years. Although apparel was slow to move online, its newfound status reflects its large market share in U.S. retail overall.

Last year, $22.7 billion, or 10 percent of all apparel, accessories and footwear sold in the U.S., went through the online channel. This year, the figure is expected to rise to $26.6 billion, or 12 percent of apparel, accessories and footwear, according to Forrester. Apparel is expected to continue to be the top category at least through 2012, at which point it is expected to reach $41.8 billion in sales online.

Meanwhile, shoppers are becoming more familiar with online shopping. The number of shoppers who have purchased clothing and accessories on the Web increased 2 percent this year over last, according to WWD’s own survey.

The most likely to buy apparel online were young adults (ages 18 to 34), 71 percent of whom said they were ‘Net shoppers. They were followed closely by those over 50, with 67 percent. The most popular categories purchased online are casualwear and accessories.

About 16 percent shop online frequently, two to three times a month or more. The vast majority — 84 percent — said they shop once a month or less.

The survey also revealed that 67 percent of those who shopped online rated the experience as “excellent” or “very good.” Less than 1 percent rate the online shopping experience as “poor.”

There is, apparently, a correlation between shopping for fashion online and a love of technology. Women who buy clothes online also fit Forrester’s definition of “early adopters,” technology optimists who are price insensitive. (This group has relatively high incomes and uses credit cards.) They are also very involved consumers. More than one-third read customer reviews, more than one in 10 post ratings or reviews and more than half tell their friends when they find an interesting product. Their mean age is 44 and their mean household income is slightly higher than those who shop online but don’t buy apparel, at $83,600 (versus $74,800).

“Everything is continuing to grow online,” said Jupiter’s Freeman Evans. “The demand side is fueling most of this. Although the supply side is helping.”

Fewer new customers are coming online, and existing online customers are buying more online and in more categories, which suggests the market is maturing, she said. In five years, growth rates will slow to between 8 and 9 percent, she predicted.

With more stores online, there is increased competition, but little change in the way customers come to sites. Search engine marketing continues to bring in the greatest percentage of new online customers at 35 percent, Forrester has found. Organic traffic accounts for 18 percent. All other sources account for less than 7 percent, with affiliate programs and e-mail to prospects topping the list at 7 percent each.

(Affiliates are any sites that get a cut of sales when a shopper clicks through on a link to a retailer’s site and buys. They can include blogs, search engines, bookmarking sites and other types of social media.)

Once popular, banner ads and portal deals accounted for only 2 percent each of new customers last year. Profiles and advertisements on social networking sites brought in 1 percent of shoppers.

This year, retailers are giving “increased priority” to the most effective marketing methods, including e-mail and search engine optimization, as well as to emerging types of marketing, such as widgets, ads and profile pages on social networking sites, blogs and online video, said Forrester.

Retailers should be cautious, however, about expecting social media to result in sales rather than brand-building.

“If direct sales are your objective and you’re implementing a social campaign to drive revenue in the near term, that’s probably not going to happen,” said Forrester analyst Sucharita Mulpuru. “The exception is customer reviews.”

These boost sales by giving shoppers lots of product information and more confidence to choose the right item. Zappos, for example, asks customers to comment on whether a particular shoe runs large, small or true to size. On American Apparel’s site, more than 200 customers left comments on the fit and durability of the company’s leggings.

Retailers typically spend an average of 5 percent of total online sales revenue on marketing, according to Forrester.

To increase sales online and off, retailers should offer clear product detail, free shipping and (if they run offline stores) inventory lookup, the firm said.

ShoeMall, mindful of its pressed-for-time customers, has made its checkout and returns process as quick as possible.

With the slowdown in new shoppers discovering the online channel for the first time, analysts recommend that retailers put more of their marketing dollars toward retaining existing customers rather than attracting new ones.

“The reality of online shopping behavior is that few customers are new to the online channel,” said a recent Forrester report. “While it may sound prosaic and cliché, free shipping offers do work. And funds that may otherwise be allocated to customer acquisition efforts may in fact be better spent as offsets to shipping fees, even if those funds go to current customers — particularly during a rough economic climate.”

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