| The State of Online Retailing |
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Part
1: Online Retail Market to Reach $65 Billion |
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"The path to profitability - and the challenges that are met along the way - differs considerably for each type of online retailer," said Michael Silverstein, senior vice president and global leader of BCG's Consumer practice. "Store-based retailers - particularly those in categories that are approaching online penetration of 10 percent - will need to take steps to carefully manage the delicate balance between their retail channels. Many Web-based retailers will need to target their niche markets or pursue partnerships to compensate for their cost disadvantages and weaker brands."
"Catalog retailers, on the other hand, have been able to take a much more competitive position in the market as they have succeeded in attracting entirely new customers through the online channel. Roughly 40 percent of a cataloger's online customers are new to the company," Silverstein added.
The movement toward profitability is due, in large part, to online retailers placing tighter controls on their marketing budgets. As a result, customer acquisition costs for all online retailers fell from an average of $38 in 1999 to $29 in 2000. Web-based retailers, in particular, were able to bring them down from a high of $82 to $55 over the same period. Indeed, the best performing Web-based retailers (the top 50 percent) reduced acquisition costs to an average of $14 per customer, rivaling the performance of catalog-based retailers.
Most Web-based retailers, however, still have a significant challenge ahead of them to establish strong enough brands and large enough scale in order to meet the rising competition from multichannel retailers. In 2000, established offline retailers increased their share in 13 of the 18 online categories.
"Online retailing requires a combination of capabilities that are not truly new, yet most players lack one or more of these critical components," said Peter Stanger, vice president and leader of BCG's Business-to-Consumer topic area in North America. "Web-based retailers need to learn the basics of retailing. Store-based players are new to home delivery and selling to consumers one-on-one from a distance. Catalogers have a leg up on many dimensions, but need to perfect ways to exploit the relationship marketing opportunities that the Internet enables and improve the consumer online experience. The winners will be those companies that can most effectively acquire or develop the capabilities they lack and integrate them with their existing strengths."
Travel, the largest online category at $13.8 billion in 2000, will continue to grow another 50 percent over the rest of the year. As the online market matures throughout 2001, however, growth in other leading categories such as books and computer hardware and software will level off at 25 percent and 15 percent respectively. Further expansion of the market will be spurred on by growth in a second wave of general merchandise categories such as toys, apparel and home and office.
The
State of Online Retailing 4.0 is the latest in a series of annual
reports and quarterly surveys conducted by The Boston Consulting Group for Shop.org.
This year's market size estimate differs from previous ones as it no longer
includes financial brokerage. Using this methodology, business-to-consumer online
sales in 2000 grew 66 percent to reach almost $45 billion.
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by Melody Treece Vargas
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