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Since the inception of the Web, online commerce has enjoyed hypergrowth, with annual sales increasing more than 25 percent over all, and far more rapidly in many categories. But in the last year, growth has slowed sharply in major sectors like books, tickets and office supplies.
Growth in online sales has also dropped dramatically in diverse categories like health and beauty products, computer peripherals and pet supplies. Analysts say it is a turning point and growth will continue to slow through the decade.
Online Sales Are Losing Steam [nytimes.com]
I can only think of one person under the age of 75 among my friends and family who has not have every day access to the net for at least the last 12 months. There is only so much each individual will buy and only a subset of that will be bought on line.
Price Disparity: Online deals aren't as common as they used to be. The old saying it was cheaper than a B&M store used to mean lower prices - isn't as much so these days.
Business: Many businesses consolidate purchasing and use corporate buying power rather than ad-hoc online purchasing by employees or departments.
Access: Many businesses restrict/prohibit online shopping.
Slow time of the year: Isn't summer usually slow?
Purchasing Power: People are spent
Growth in online sales has dropped dramatically in diverse categories like books, health and beauty products, computer peripherals and pet supplies.
Welcome to the world of ecommerce.
In the last couple of months, I and my wife purchased a good number of things online directly from asian suppliers. They had good websites, great english, and BY FAR best prices online. We've even ordered custom chairs, $100/piece that would cost $500/piece in US online stores. I purchased PC cables and paid PENNIES, versus $15-$25 per cable locally. This is just the beginning. Ditto for books.
I monitor Home and Bath niche. In our area, the best stores for bath, tiles, shower etc. products are several ethnic-owned stores (mostly eurpoeans). They carry stuff that has a lot more class, design and modernity (is there such a word?) then any other local store. Currently they are so successfull that Home Depot opened a second store in the area (within 10 minutes drive) and built a special section of these products that looks so European, innovative and bold as one could posssibly expect from a large corporate entity. I talked to the guys who own one store, and they say they have hundreds of competitors in the area, and a large number of them went out of business in the last couple of years. They couldn't figure out why unremarkable product lines they've been carrying for 20 years no longer sell. This is market and evolution, not the "Gloom and doom in home and bath niche" :)
A reasonable guess for slowdown in pet supplies would be poison found in lots of cat/dog foods. That would turn lots of people away from the niche.
Now, the big boys selling their wares may not be growing as much, but they are big ships that are not as flexible as smaller companies that can adapt and change strategies quickly. Ultimately, growth of any business boils down to the ability to take market share.
For instance, one of my clients sells one of those categories mentioned in the article, computer peripherals. Year over year, we are averaging 110% growth. Is this sustainable? No. Are we taking market share? Yes.
Interestingly, the article doesn't point out the growth rate high-speed internet adoption, or the continued growth of internet connections. More connections means more potential customers.
But this version of the article comes with a graphic that the most recent growth rate is "only" 20%. This is exactly the sort of pattern any normal person would expect. You really have to work hard to spin this as a problem for online retailing.
However in the past few years I've seen a lot of B&M stores that also have started to compete with the e-tailers, especially with loose diamond prices which took the biggest hit since they are so easily listed on a website and sorted by price. They've shrunk profit margins substantially, are now buying up higher in the production chain and are getting much leaner and are competing better with the online stores. Some chain stores are coming out with their own branded/patented diamonds, etc to differentiate themselves from the e-tailers.
So the B&M stores are fighting back, no question about it. However I still see a lot of growth in online sales in general, even jewelry.
You can only sustain high growth rates for so long. For example, once you reach 100%, it is really really hard to reach 101%.
Without knowing what the baseline is or was, just saying that "growth" has stopped is meaningless. Once you reach saturation you simply are not going to grow any more.
The retailers that have started in-store pickup programs, like Sears and REI, have found that customers who choose the hybrid model are more likely to buy additional products when they pick up their items.
While online sales may be declining in certain sectors, what about sales at the traditional level? Are they in turn going up and accounting for the loss in online sales? Are more people "window shopping" online and then purchasing at the local level?
It may also "just be" a sign of the times. For as far back as I can remember, there has been an Ebb and Flow in sales.
The report states that sales were down in certain sectors while they were up in others. I guess it is all going to come down to who can market their products/services the best at all levels.
Also, the whole ecommerce experience has become so convoluted with this feature, and that feature, that the user can be sometimes overwhelmed. Larger stores are guilty of this. There is just too much going on for some online consumers. If they are going back to the traditional level, that means the current ecommerce model is failing. Time to make some changes, eh?
The other part of the equation is operating costs. Most business should be able to trim their operating costs as they mature. Less need for development, improved operational processes, better targeted marketing, etc....
I was with a company that went from 50 million to 150 million in online over 6 years. At a certain point it was not realistic to expect 25% growth year over year because there is finite demand. We also went from 150 employees to 75 in that time, so lower growth did not hurt us.
Spin, spin, spin.
2007 will likely be a bad year for most too, but for the economy as a whole and not just online retailers. Too many bad things going on...housing bust, sky high gasoline, devaluation of the dollar, escalating food prices, etc.
Anyway, as far as online shopping goes, one of the most important points to be made is that it's a fundamentally different animal from instore shopping. Probably most of what I buy online is not available for sale anywhere in my city; it's mostly long-tail products, virtual products, and not infrequently one-of-a-kind items.
In other words, local retailers may be competing for my purchasing dollars in general, but are usually not competing for specific purchases.
The bulk of e-bay is now fuelled by the commerical and semi-commerical sector, based upon creating a hyper-competitive market along with a one-stop-shop.
I expect the future major players in the e-commerce sector to be delivering exactly what consumers want: the very cheapest price for goods of sufficient quality which are delivered in a reasonable timeframe. It will be, in short, a dropshipper's market.
Probably a very important key. Once these people reach major buying levels, it's only obvious they will replace older generations that were #*$!tish in buying online.
[edited by: LostOne at 1:09 pm (utc) on June 19, 2007]