department of transportation

department of transportation - The North American online retail market is expected to grow 45 percent in 2001, reaching $65 billion, according to a Shop.org study conducted by The Boston Consulting Group (BCG). The study, "The State of Online Retailing 4.0," is based on data from 55 retailers, 156 of which participated in a detailed survey. It found that online retailing is emerging from its shakeout of 2000 with stronger consumer demand and improved profitability. "While consumer demand continues to propel growth, online retailers have wrestled with operational issues and improving their performance in key areas such as customer acquisition and buyer conversion," said Elaine Rubin, chairman of Shop.org. "There is a steep learning curve in becoming an online retailer -- those players that were unable to excel in all facets of this complex business just didn't make it to the end of 2000." Despite a seemingly endless stream of bad news during 2000, online retailers were able to reduce losses as a percentage of revenues from 19 percent in 1999 to 13 percent, or $5.6 billion, in 2000. While overall performance for online retailers improved in 2000, distinctions increased among the different types of online retailers. Currently, 72 percent of catalogers, 43 percent of store-based retailers and 27 percent of Web-based retailers are profitable at an operating level, the survey found. "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 categoriesthat 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 to pursue partnerships to compensate for their cost disadvantages and weaker brands." Catalog retailers, meanwhile, have been successful at attracting entirely new customers through their online operations. This has allowed them to take a much more competitive position in the e-tailing market. The movement toward profitability has been helped by tighter controls placed by online retailers on their marketing budgets. This helped customer acquisition costs for all online retailers fall from an average of $38 in 1999 to $29 in 2000. Web-based retailers were able to bring marketing costs down from a high of $82 to $55 over the same period. 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. The study found 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 product categories.