Online Shopping Continues to Click

An industry survey shows that Internet retail sales should grow 27% this year.
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Retailers continue to benefit from the ever-increasing ease at which the American consumer now shops online. That comfort contributed to a doubling of 2003 online sales and is expected to help produce a 27% jump this year, according to an industry study.

Online retail spending is forecast to reach $144 billion in 2004, or 6.6% of total sales, according to "The State of Retailing Online," a study compiled by Cambridge, Mass.-based Forrester Research for Shop.org, an association for online retailers. Apparel and health and beauty products are expected to be among the fastest-growing categories in 2004.

"Consumers continue to expand their online buying into new product categories as they become more comfortable shopping online," said Carrie Johnson, a senior analyst at Forrester Research. The annual study surveys 150 retailers.

Already, first-quarter online sales have shown improvement over those from a year earlier, helped in part by increased consumer confidence. The Census Bureau reported on May 21 that first-quarter 2004 e-commerce sales in the U.S. rose 28.1% to $15.5 billion, or 1.9% of total sales, which was up from 1.6% of total 2003 sales.

Total retail sales in the first quarter were up 8.8% to $834.8 billion.

In 2003, online retail sales rose 51% to $114 billion, composing 5.4% of all retail sales, the Shop.org survey said, as a result of a 91% jump in online travel sales and strong home and office, hardware and software sales.

By comparison, online sales totaled just $13 billion in 1998.

Two Web-based retail heavyweights,

eBay

(EBAY) - Get Report

and

Amazon.com

(AMZN) - Get Report

, each had solid results in 2003. eBay posted a 57% increase in 2003 revenue to $684.4 million, while earnings rose to $142.5 million from $87 million in 2002. The company expects full-year 2004 revenue as high as $3.15 billion.

Amazon had a 34% in sales in 2003 to $5.26 billion, while full-year earnings were $35 million, up from a loss of $149 million in the year-earlier period. The company sees 2004 sales increasing to as much as $6.85 billion.

"Online retailing has experienced its own version of survival of the fittest, in which those online retailers that couldn't control costs while attracting online consumers shuttered their doors," the study said, citing the fact that two-thirds of Web-based retailers reached profitability in 2003.

Retailers also are realizing important synergies between their online business and in-store business. In 2003, 24% of retailers said in-store sales were influenced by customers' ability to view items online. That's up from 15% in 2002. In addition, 87% of retailers accepted returns or exchanges in stores of items purchased online, the study also said.

"Retailers online have found the right balance between selling a product, acquiring and retaining customers, and earning a profit," said Chairman Elaine Rubin of Shop.org.

Specialty retailers with the bulk of business coming from in-store sales are also benefiting from the overall increase in online sales. Upscale gadget company

Sharper Image

(SHRP)

had a 58% spike in Internet sales in the first-quarter 2004, to $26.2 million. Overall sales rose 34% to $156.4 million, while net earnings increased to $2.1 million, from $700,000 in the year-earlier period.

In all of 2003, Internet sales increased 37% to $95.1 million at Sharper Image, while total sales increased 29% to $379.3 million.

Meanwhile, Internet sales at apparel retailer

Urban Outfitters

(URBN) - Get Report

have also boosted quarterly sales. In the latest first quarter, the company had a 95% in direct-to-consumer sales, which include Internet and catalogue sales, to $18.6 million. Net sales in the quarter increased 59% to $170.3 million.

In 2003, the company said total sales rose to $422.8 million, of which direct-to-consumer sales were $31.8 million, or 7% of total sales. That compared with total sales of $349 million in 2002.