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INDUSTRY WATCH:
The Shopping Cart Steamrolls
By David Rubinstein
December 1, 2004 — Online retail sales are expected to grow to US$144 billion this year, according to shop.org, an arm of the National Retail Federation that monitors such things. If that’s not staggering in its own right, consider that six years ago, in 1998, the first year shop.org tracked online retailing, sales were at $14.9 billion. And six years before that, it’s safe to say, online retailing did not even exist.
It is believed the first online transaction occurred 10 years ago this past August. Also 10 years ago, the World Wide Web Consortium came into being. That’s the body most responsible for the standards and protocols upon which the Web is based. And after a slow start, there appears to be no stopping the shopping cart.
Part of the reason for the slow start was security—people at first did not trust the fact that their credit-card information would remain secure. They were scared by stories of hackers stealing their numbers literally out of thin air and running up huge charges. And remember the adult entertainment purveyors who were caught by the Federal Trade Commission for fraudulently billing credit cards and had to make some $30 million in restitution? In short, trust was not high.
Then there were issues with the Web itself. A medium designed for presenting pages now was being asked to show items in different colors and with different features, complete sales transactions, and connect vacationers with rental cars, flights and hotels. The presentation layer was rudimentary, there were reliability and compatibility issues, and the back-end hooks hadn’t been written yet. Further, companies hadn’t yet figured out a good model for what to sell, or how to sell it, because in their estimation, there just wasn’t enough traffic on the Web to warrant significant investments in online retailing.
Once those hurdles were cleared through the use of industry standards regarding security, data access and Web application presentation, and through the innovative contributions of many of the dot-com companies that no longer exist today, significant numbers of people began to take advantage of staying home to shop. And businesses realized the importance of providing customers with a friendly, interactive experience.
Scott Silverman, executive director of shop.org, had a simpler explanation, though. “People just needed to get comfortable making a transaction a new way,” he said.
Just as customers needed to grow into the idea of purchasing goods and services over their computer, businesses needed to get comfortable, too. “Our first Internet experience was on the supply side,” said Rich Donaldson, a spokesman for outdoors clothing and equipment retailer L.L.Bean in Freeport, Maine. “We were using the Internet for product procurement right down to where the cotton is grown. And we saw how the Web would apply to the business.”
Different types of businesses have used the Web in different ways. For brick-and-mortar retailers, the Web offered an opportunity to cut marketing, staffing and real estate costs while still offering a complete catalog of its goods. For hotels and airlines, it meant reducing call-center staffing dramatically and letting travelers choose their own flights and rooms. For mail-order companies, the Web cut mail and printing costs, and helped the companies truly zero in on their customers’ purchasing habits.
L.L.Bean at first thought technological advances would simply result in putting its famous catalog onto a CD-ROM. Then, the company launched its Web site in 1995, and took its first live orders in 1996. “The pages on the Web at first were for people to browse but not to transact. We wanted it to reduce our dependency on paper,” Donaldson explained.
Online transactions certainly are working now. This year, sales from the Web will make up 6.6 percent of all retail sales; that figure was 3.6 percent in 2002, according to the shop.org/Forrester Research report titled “The State of Retailing Online.” Further, 79 percent of retailers reported positive operating margins from their Web businesses, while online sales now account for more than 5 percent of all sales in 12 retail categories, up from nine categories in 2003.
At L.L.Bean, the Web is the company’s fastest growth channel, Donaldson said, and he expects Web sales to overtake catalog sales in the next year or two.
There is, however, an intrinsic value of the catalog as a resource, he added. “You don’t have to plug it in, and it doesn’t matter if you drop it, and it comes to your home. It’s in your face as an important reminder.” The goal for L.L.Bean, he said, is to split the business into thirds by channel: catalog, Web and stores.
It will be interesting to see in the next 10 years what standards will emerge, and how businesses will incorporate those standards into applications that bring in customers, satisfy them and increase the likelihood that they will, as the signs in the store windows say, “come back soon.”
NEXT: WHERE DO WE GO FROM HERE?
David Rubinstein is editor of SD Times.
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