Despite e-retail growth, many retailers struggle to grow online
January 7, 2016 12:14 AM
While online retail is growing much faster than stores sales, not all online retailers are sharing in the benefits, according to a closely followed annual report on online retailing in the United States released today.
A growing percentage of retailers are struggling to grow online, concludes the “SORO 2016: Key Metrics, Business Objectives and Mobile” report. This is the first 2016 installment of the State of Online Retailing series of reports issued each year by Shop.org, the e-commerce arm of the National Retail Federation and Forrester Research Inc. This year’s report also includes consumer survey data from Bizrate Insights, part of marketing technology provider Connexity.
The report shows that online sales in 2015 were flat for 17% of responding retailers, versus only 3% in last year’s report. “Much of this is due to more retail competition than ever before,” says the report, authored by Forrester e-retail analyst Sucharita Mulpuru. “More than 800,000 online stores in the U.S. alone are now vying for recognition, market share and relevance with assortment.
Other factors squeezing online growth including the significant number of cash-strapped U.S. consumers seeking online bargains. “During days like Thanksgiving and Cyber Monday, more than 90% of shoppers purchased with some deal or promotion like free shipping or a discount,” the report says, citing a fourth quarter survey by Forrester and Bizrate Insights.
What’s more, the report concludes that, “while it’s relatively easy to launch a web store, scaling an online business is extremely difficult.” Retailers saying they’re spending 9% of their online revenue on information technology now versus 5% in 2013. In addition the average marketing cost per order is $20 for responding retailers, with 49% saying it’s increased in the past year, and the average cost to fulfill an order is $10, with 27% saying it’s up in the past year.
While the report doesn’t mention Amazon.com Inc. by name, the e-retailer, No. 1 in the 2015 Internet Retailer Top 500, could account for at least part of the slower growth for many web merchants and the pressure on them to spend more on technology, fast delivery and marketing. A recent analysis by investment firm Macquarie Research concluded that Amazon would account for 51% of U.S. online sales growth in 2015 and 24% of all U.S. retail growth.
But Mulpuru says Amazon’s growth isn’t the whole answer, especially since many responding retailers sell on the Amazon.com marketplace and thus share in its growth. Speaking of Amazon, she says, “It's a factor but keep in mind many respondents are marketplace merchants and they're still struggling. There are 800,000 web stores now. You can't blame Amazon for everyone's woes.”
In terms of investment priorities for 2016, 59% of retailers mentioned both mobile technology and marketing, followed by site merchandising at 41% and checkout overhaul at 23%. Last year, mobile led the way at 58%, followed by omnichannel efforts at 45% and marketing at 38%. However, the survey this year was much larger—195 retailers responded versus 71 last year—and many more were web-only merchants, 24% versus 6%.
One big shift noted in the report is the growing importance of smartphones versus tablets. This year’s report says smartphones represented 17% of online sales for the retailers responding to the survey and tablets 14%; last year it was 12% for smartphones and 14% for tablets. It also noted retailers are investing less in tablets than mobile phones, with 37% saying they spent nothing on tablet-specific initiatives in 2015 versus 18% saying the same about smartphones.
The report also found greater emphasis on making it easy for mobile consumers to shop on a website versus through an app. Only 14% of retailers said they have an iPhone app and 8% an iPhone app. But the figures were significantly higher for larger merchants: 48% offer an iPhone app and 24% an iPad app.
The report says the median conversion rate for retailers responding to the survey was 3% and site abandonment rate 49%. The median average order value was $103, but $120 for repeat customers.
Mulpuru says retailers can generate more repeat orders by offering a wider selection of merchandise, including by offering “marketplace” sections of their e-commerce sites where other merchants can sell. “Marketplaces and drop-ship programs make assortment growth easier than ever and can provide powerful support to existing loyalty programs,” she writes in the report.
She also encourages retailers that operate stores to optimize their programs for fulfilling orders from stores, which can reduce the cost of shipping items to consumers’ homes. Store operations are likely to blame if a retailer isn’t saving money by shipping from stores or offering in-store pickup of online orders. “Audit where things may be falling apart,” Mulpuru writes in the report, “and determine what needs to be done to fix them.”