6 Online Retail Trends

The following six trends were discussed by Scott Silverman, executive director of Shop.org, during the closing keynote session of the Retail Marketing Virtual Conference & Expo, which took place on June 24 and is on demand until Sept. 28.

1. Online retail growth in the context of overall retail and Amazon.com. Online sales today far outperform retail stores, and they continue to be a bright spot in the industry and a growth driver in retail overall. But retailers should also think about the web's impact on offline sales. "Looking at the impact the web has on offline sales makes you think about things differently, and makes you think about the fact that online sales are just the tip of the iceberg," Silverman said.

Another way of looking at online sales is in the context of Amazon.com. In the first quarter of 2010, Amazon.com's sales were up 39 percent vs. overall U.S. online sales, which were up 10 percent over the first quarter, Silverman said. "There's no question that Amazon.com is grabbing market share, and grabbing it from quite a few retailers," he said. "So, every retailer must think about what their competitive strategies are in relationship to Amazon."

2. Latest sales data. Silverman presented data from Shop.org's latest first quarter flash survey of 75 retailers. The results included the following:

• average web retailer sales growth for the first quarter of 2010 vs. the first quarter of 2009 was 12.3 percent;
• more than half of the retailers surveyed reported year-over-year (YOY) sales increases of 10 percent and higher;
• only one-fifth of retailers reported YOY sales increases of 10 percent or less; and
• the majority of large and midsize retailers surveyed experienced sales increases, and almost two-thirds of small retailers ($10 million and under) also experienced sales growth.

3. Cross-channel retail. Cross-channel retail strategies remain in the early stages, Silverman said. "The problem we're having as an industry is that if you're a multichannel retailer with retail stores, you're thinking about the ROI and profitability of your online sales, so every dollar you spend you want to plow that back into online sales," he said.

"So, if there's a budget allocated for other things, such as driving customers to your stores, that will affect your online sales profitability — and potentially your bonus at the end of the year." As a result, Silverman said the industry needs to "get away from the current silos and develop new structures."

The mobile web, however, may be the one big idea that will unify and break down the silos. "All the functionality for online retail is being taken into the store by consumers on their smartphones," Silverman said. "They can compare prices, look up ratings and reviews … all while shopping in stores. Retailers who've been in denial of the impact the internet has on retail stores can't ignore it anymore. Consumers are clearly using the web in stores."

4. Emerging disruptive business models and fast-growing consumer trends. The following is a list of new business models that Silverman said retailers should be aware of since "consumer adoption of some of these new trends is so rapid right now it's frightening":

• Social games and virtual goods. Zynga, the publisher of FarmVille and Mafia Wars, is generating close to a billion dollars in revenue from consumers spending real money on virtual goods.
• Private flash sales. These sales are exclusively for members, last only a few days and usually include limited quantities of luxury items. Examples include Rue La La, One Kings Lane and The Gilt Groupe.
• Gaming mechanics. These online game rules can be used in e-commerce. A good example of this, Silverman said, is Swoopo, a bidding fee auction site where purchased credits are used to make bids.

5. Free shipping. "Customers love free shipping," Silverman said. Amazon.com introduced this idea, and it's caught on like wildfire. Amazon now has "Amazon Prime," a membership service that allows consumers to pay a yearly flat fee to get two-day shipping for free the entire year. "This is a competitive advantage Amazon has been able to leverage." Silverman also offered the following data from comScore about free shipping:

• nearly 80 percent of retailers offered free shipping with conditions at some point during the 2009 holiday season;
• more than half also planned to offer free shipping without conditions; and
• one-third of holiday shoppers said they planned to spend more online during the ‘09 holiday season because of free shipping specifically.

6. Online privacy. Because of the importance of privacy to web-only and cross-channel retailers, Shop.org is monitoring this subject very closely, Silverman said. Jon Liebowitz, for example, the new chairman of the Federal Trade Commission, "has been very clear that he believes the current system of opt-out is broken and would like to see it fixed," Silverman said. Shop.org is also tracking the privacy bill introduced in May by Rep. Boucher, and the following two bill proposals:

• social security numbers and financial account numbers are in the same category as IP address and cookies; and
• a bill which requires affirmative consent (opt-in) for material changes to privacy policies in the draft bill.