While retail reels, e-tail is doing even better than expected, according to a report due out today from the National Retail Federation.
This story first appeared in the October 16, 2009 issue of WWD. Subscribe Today.
Of 164 merchants surveyed, most grew in both revenues and profits during 2008.
“If you go back to 2008, we did experience double-digit growth in 2008 and we were profitable,” said Denise Incandela, president of Saks Direct, whose experience paralleled the findings in the report.
Web divisions grew in revenue by an average of 18 percent. The majority of respondents, 87 percent, were profitable. Of those who were, 57 percent said they were more profitable in 2008 than the year before.
“There’s a lot of organic growth in the online business still,” said Incandela. “Prior to the recession, we were growing 30 to 50 percent a year, so it doesn’t surprise me that we would fare better and recover more quickly.”
This year has also been good. “While spring was a bit challenging but still positive, fall has been a huge success,” said Incandela. “Our fiscal season starts at the beginning of August, and we’re up substantially over last year right now so we’re very pleased with the online business and its growth.” Shoes, children’s, fashion jewelry and accessories have been particularly strong for the retailer, and Incandela said she is hopeful the momentum will continue through the holiday season.
Forrester, which conducted the survey, predicts growth in online sales of 11 percent this year and growth of 12 or 13 percent in 2012.
“Finally the value of the channel has come home to roost,” said Sucharita Mulpuru, lead author of the report and Forrester analyst. “The channel should be more profitable,” than physical stores, she said, but early overinvestment and other issues dogged it until now.
In their response to the downturn, most e-tailers focused on preserving margin, they said. Other popular tactics were increased promotions, increased “value” messaging and growing and preserving market share.
Conversion rates averaged 3.4 percent, and slightly fewer than half of online retailers said their conversion rates increased. Shopping cart abandonment rates were 51 percent. Average order value was $183, with three being the average number of items per order. Returns as a percentage of total orders were 7 percent. Typically, retailers made 6 percent of their revenue from shipping. They spent an average of $14.30 in marketing and $8.15 in fulfillment costs per order.
The respondents included 31 pure plays and 70 multichannel retailers. Thirty-seven have sold online for a decade or more, and 47 respondents grossed $100 million or more in 2008.
In the social media realm, more than 60 percent of merchants said they have pages on sites such as Facebook. Slightly more than half offer customer ratings and reviews, use microblogs such as Twitter and have their own retail blog or online community. Widgets, crowd-sourced help, virtual worlds, outfit sharing and other forms of social media were much more rare.
“We’re evolving in the social space from month to month,” said Incandela of Saks, which reached out to bloggers and got into YouTube, photo sharing and other forms of social media early on. “I think it has a positive impact but at this point it’s still hard for us to measure. It gives us an opportunity to interact and engage with customers, which we think is really important.”