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Online Retail Sales To Reach $329 Billion By 2010: Forrester

10/07/2005 01:36:00 PM Eastern

Cambridge, Mass. — Online retail sales in the United States are expected to grow from $172 billion in 2005 to $329 billion in 2010, according to a new forecast by Forrester Research. The increase translates to a solid 14 percent compound annual growth rate over the next five years, and consumer electronics is one of several categories that is seen outpacing that growth rate.

The report outlines a maturing online economy and a shift in retail philosophy as e-tailing enters its second decade. Many retailers are investing in innovations, such as sophisticated analytics and personalization tools, to enhance the online experience for existing consumers. The result: Businesses no longer view the Web as a low-cost sales channel but as a way of improving customer service and retention.

"Many [retailers] believe they became too focused on sales. Now they’re looking at their Web sites as a way to drive in-store traffic and increase their engagement with customers," said Forrester’s VP Carrie Johnson. "This is a huge shift in philosophy as e-commerce enters a more sophisticated phase. But it’s also creating tension as CEOs demand return on investment for expensive Web sites with hard-to-define metrics such as loyalty and brand."

Retailers acting on this new philosophy include Target, which is using its Web site to promote and brand its brick-and-mortar stores. All retailers to some extent are being forced to become more innovative online because pure plays such as Amazon.com and Newegg.com have raised the customer experience bar, according to Forrester.

Other highlights of the report:

• e-commerce will represent 13 percent of total U.S. retail sales in 2010;

• general merchandise (all retail categories excluding auto, food and beverage, and travel) will top $100 billion for the first time in 2005;

• 29 percent of small appliance sales will migrate online by the end of the decade as a generation who grew up with Internet access begins to get married and attend weddings;

• categories showing significant growth (above the overall 14 percent compound annual rate) besides consumer electronics include apparel, health and beauty, home products, food and beverage and sporting goods.

The $329 billion represents a minor downward adjustment from Forrester’s 2004 forecast of $331 billion for 2010. This is due to recent softness in overall consumer spending.

"U.S. eCommerce: 2005 To 2010" can be purchased at www.forrester.com.

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