Online sales bright spot in poor economy

In a sluggish economy where retailers in general are taking a beating, online retailers in Chicago and nationwide continue to make gains in both sales and consumer satisfaction.

According to a recent survey of 125 retailers by Forrester Research Inc. and a Shop.org study, online retail is expected to be a bright spot in the industry in 2008 with sales estimated to rise 17 percent this year to $204 billion from $169 billion in 2007.

Apparel, computers and autos were the three largest online categories with $26.6 billion, $23.9 billion and $19.3 billion in sales, respectively.

Meanwhile comparable store sales for retailers in May increased by just 2.5 percent, following a 3.3-percent rise in April, according to Thomson Reuters.

“From higher shipping costs to changes in consumer shopping habits, online retailers are not immune to the current economic climate,” said Scott Silverman, executive director of Shop.org. “But the fact that online sales will increase substantially this year demonstrates the resilience of the channel.”

Over the past three years, Northbrook-based Crate and Barrel said online sales increased 79 percent. “This year, 23 percent of total sales came from online retail,” said Bette Kahn, public relations personnel at Crate and Barrel.

According to a survey of 24,000 online customers by Forsee Results, a consulting firm, satisfaction with e-retail was up 1.4 percent from last year, to 75 on the University of Michigan’s American Consumer Satisfaction Index’s 100-point scale.

Elements used in the survey to determine online satisfaction for the top 100 retail Web sites included quality of site organization, consistency with brand images from other channels, navigation, product information and special features.

“A key driver of increased online sales and consumer satisfaction is consumer generated product reviews,” said Larry Freed, president and CEO of Forsee Results, who expects online sales to rise 19 percent this year over 2007.

Though Netflix.com, QVC.com and Amazon.com were among the top 100 retailers with the highest consumer satisfaction score, Itasca-based MarketDay.com, Northbrook-based CrateandBarrel.com and Deerfield-based Walgreens.com made it to the top 50 in terms of online customer satisfaction.

The list also featured other major Illinois-based online retailers including Sears.com, FTD.com and OfficeMax.com.

“What’s spearheading online retail sales growth is a tale of two shoppers that visit the Web for very different reasons,” said Sucharita Mulpuru, principal analyst at Forrester Research.

“The casual shopper goes online to look for the best price, leveraging the transparency of the Internet to save money. However, more affluent customers appreciate the convenience of shopping online and are not necessarily looking for the best deal," Mulpuru said.

"Retailers would be wise to recognize there are significant opportunities within both audiences and should market to them accordingly,” he added.

Realizing this strategic potential, retailers are allocating approximately 53 percent of their marketing budgets to getting more online customers and 21 percent of marketing dollars to retaining them, according to Forrester Research’s report.

Walgreen Co. is using offline marketing tactics to drive customers to the Web, with catalogs and other direct mail pieces taking priority over methods like television and newspaper advertising.

“A company, especially in retail, doesn't survive for over 100 years without having the ability to adapt quickly to changing industry dynamics in a way that stays true to the company's core strengths,” said Mitchell Corwin, equity analyst who covers Walgreen Co. at Chicago-based Morningstar Inc.

Hoffman Estates-based Sears Holdings Corp. has added new tools on its Web site like gift registries to enhance online shopping experience for consumers and thereby boost online sales.

“The decentralization of Sears’ online business will allow the company’s brand managers to focus more effectively on improving the online retail business,” said William Dreher, equity analyst at Deutsche Bank Securities Inc.

Crate and Barrel will also be launching a new and improved Web site in 2008 to make online shopping more convenient and enjoyable for customers. “We expect this transition to be seamless,” said Kahn.

Though free shipping offers have proven effective in getting some consumers to shop online, just 35 percent of the retailers surveyed by Shop.org said they would focus more on these types of promotions. Instead, more than 65 percent of the retailers said they were eager to experiment with social network advertisements and widgets to attract customers.

“In a weak economic environment, retailers are looking for the most cost-effective way to attract consumers and better online sales,” Freed said.