Online retailers as a group turned a profit for the first time last year as sales shot up 51% from the year before, according to a Forrester Research study, sponsored by the online trade group Shop.org. Collectively, the 150 retailers surveyed raised their operating margins to 21%. They achieved profitability by slashing average marketing costs per order to $2 in 2003 from $10 the year before.
How'd they do it? Paying search-engine companies for prominent placement in keyword search results helped a lot. That delivered the customers, who spent a lot more on the sites. Online sales rocketed to $114 billion--about 5.4% of all U.S. retail sales--from $76 billion in 2002, the State of Retailing Online 7.0 study says. The report foresees online retail sales jumping 27% this year to $144 billion.
Retailers with online, catalog, and brick-and-mortar channels didn't increase their investments in in-store technology and complex, cross-channel tracking systems last year. They focused on less-expensive integration--such as marketing their Web sites in stores--than on bringing technology into the stores, the report says.
Another example: Fewer retailers used sophisticated technologies to combine data from different channels to identify common customers and their shopping habits. Last year, 40% of retailers surveyed used such systems, down from three-quarters a year earlier. Fifty-five percent of the retailers say they relied last year on online customer questionnaires to gather some of the same information.
"Using technology to track customers can be a complicated, expensive undertaking," says Scott Silverman, executive director of Shop.org, a division of the National Retail Federation. "Retailers can get same insight by simply asking the customer."