Forrester: E-Commerce Dollars Growing But Cannibalization A Big Factor

Written by Evan Schuman
April 9th, 2008

E-Commerce is growing sharply—much more rapidly than in-store sales. It grew some 21 percent, to $175 billion last year, crediting E-Commerce with six percent of all retail sales, according to new figures from Forrester Research. It was part of their annual State of Retailing Online Report that they do with NRF’s

That E-Commerce figure will hit $204 billion this year (when its percent of total retail will climb to seven percent) and will continue to have major gains for the next several years, hitting $335 billion in annual sales by 2012, Forrester said.

But one of the report’s authors, Forrester Research Director Carrie Johnson, said that this isn’t necessarily cause for retail celebration, as she projected that many of those increased sales are little more than online cannibalizing in-store sales.

The report did, however, offer suggestions for how retailers can survive during some expected difficult months ahead for the retail economy.

The first suggestion is that retailers focus on customer retention much more than on customer acquisition, if for no other reason than that there will be much fewer new customers to lure in.

"While some retailers are indeed focusing on assorted retention marketing efforts like bounce backs in outgoing packages, the top obstacle to online shoppers—even those who are frequent online shoppers—is related to shipping fees. Traditional acquisition vehicles such as search engine marketing may be best-served when tweaked to adjust copy and landing pages to attract current customers, shifting the goal of such programs from acquisition to explicit retention marketing," the report said. "Also, 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."

The other suggestion from Forrester is to resist moving to social networks, even though that is where so much attention is being paid.

"While many online retail companies want to be innovative and position themselves as being on the bleeding edge of Web 2.0 initiatives, Social Computing efforts continue to be largely experimental with little direct correlation to sales," the report said. "Ads on social networks for instance, are known for having notoriously low click-through rates, far below traditional banner ads and much lower than paid search ads. Social Computing efforts may be effective at brand-building but less so at proving that they can drive revenue or conversion, which are the core metrics to which interactive marketers are held accountable."


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