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Consumers are pouring online. The better the economy, the more people surf the Web—and the longer people have been online, the more they buy on the Web. All trends for Web sales point sharply up, but these Web sales threaten traditional distribution arrangements, customer service plans, fulfillment operations, and even male dominance. 

Highlights:

• Online sales will keep going up, over the next few years, with most of the surge concentrated on the countries that are already leading the wave.
• Women are becoming more influential than men in online buying, and they are demanding better customer service, more response by email, and on-time delivery.
• Stores that already have an established brand and on-the-ground distribution will soon dominate over pure dotcoms, forcing the surviving dotcoms to merge with a brick-and-mortar chain, or a brand with many physical outlets.
• Cross-border sales and the courts will threaten traditional exclusivity and selective distribution schemes, because consumers can buy abroad almost as easily as they can at home, and although some courts might protect those deals, the courts with larger jurisdiction tend to frown on practices they see as anti-competitive, particularly on the Internet.
• Poor customer service, lack of email response, difficult checkouts, and malfunctions continue to discourage people from completing online purchases. The worst indicator of this dissatisfaction is that the vast majority of shopping carts are still being abandoned before the customer completes checkout.
• Business-to-business sales will soon dwarf business-to-consumer sales, and both will radically redefine traditional distribution arrangements.

Online sales continue to skyrocket

Although most people use the Internet for email, online shopping is growing fast, and should account for 8.6% of worldwide sales of goods and services in 2004, according to Forrester Research (October, 2000). They call this surge onto the Net "hypergrowth."

Ecommerce will be unevenly distributed

Twelve countries will account for 85% of all online trade in 2004, because weak infrastructures, political and cultural resistance, and poverty hinder growth in Latin America, Eastern Europe, the Middle East, and Africa, according to Forrester Research (October, 2000). The U.S. will continue to be the global leader with online sales of USD3.2 trillion in 2004, trailed by Western Europe with USD1.5 trillion, Latin America with USD82 billion, and Eastern Europe, Africa and the Middle East netting a combined total of USD68.6 billion. (See graphic).

Consumer shopping on the Web grows fast

In July, online shopping sites had 52 million visitors, globally. North America will probably account for 54% of online sales in this holiday season, but both Europe and Asia/Pacific markets will grow by more than 90%, for a combined share of 35.7%, according to the Gartner Group (September 2000). A November report from Deloitte and Touche estimates that 55% of all Internet users have bought or will buy goods online during 2000, and 42% of all Internet users will shop on the Web this holiday season, averaging USD264 each in online purchases. The largest group buying online: people 24 to 35 years old.

More experienced online users buy more

As a country’s Internet market matures, consumers spend more online. Also, the longer a consumer has been using the Web, the more she spends, according to Jupiter Media Metrix (November 2000).

Women are increasing their presence online

Women now outnumber men on the Internet in the U.S., totalling 51% of all users, according to NielsenNetRatings (July 2000), while men still predominate in Latin America (60%), the UK (61%), Singapore (58%), Australia (55%), and New Zealand (52%). But everywhere women are moving onto the Internet in large numbers. A survey by Media Metrix concluded that women who have Internet access use the Web more often than men (August 2000).

Branding and buildings count

Having an offline presence helps convince people to buy at your Web site, according to American Express (October 2000). In a survey of 11,410 Internet users in 10 countries, 80% of their respondents rated trust in the brand name as one of the most important factors when buying online. As more companies integrate the Web into their day-to-day business, more consumers will spend time on sites that fulfil their daily needs, according to Jupiter Media Matrix, which preidcts that traditional businesses that can sell their products on the Web and in physical stores will dominate the ecommerce market, forcing most pure dotcoms to merge with offline businesses to survive. The recruitment firm Challenger, Gray, and Christmas report that job losses in the U.S Internet sector hit new highs, as pure dotcoms crashed in record numbers (October 2000).

Cross-border Web sales threaten exclusivity

Cross-border sales online should grow to USD1.4 trillion in 2004, of which USD1 trillion going to consumers, and the rest business-to-business, according to Forrester Research (November 2000). Western Europe should lead the export boom with USD692 billion in sales, followed by the Asia/Pacific region, with USD219 billion, and North America with USD210billion. Forrester expects that a few countries will turn into major online exporters, accounting for 80% of this trade, while everyone else imports. Such globalization will threaten existing arrangements for exclusivity or selectivity, which are difficult to enforce outside of the manufacturers’ home countries. Consumers can buy from foreign sites with increasing ease.

How can a manufacturer retain exclusive or selective deals with retailers, to protect their brands as luxury products, when faced with multiple web sites around the world offering those products for sale, often at a discount? At the same time that the global reach of the Web threatens those traditional arrangements, aggressive retailers on the Web are asserting their right to resell these brands, with or without permission from the manufacturers.

French perfume makers, for instance, are struggling to preserve exclusivity, but the nature of the Web suggests that they will eventually fail, at least in the global market. Yves Saint Laurent and Van Cleef & Arpels recently won a lawsuit forcing Parfumsnet to stop selling their products from a French site, but Parfumsnet has simply redirected consumers from that site to its site in Spain, where a French-language version will soon appear. Business Week commented, "While French perfume makers have been successful in stopping online trading in their own country, it is unlikely that courts in other countries will be as sympathetic to their concerns." (In the U.S., perfumes from French perfume makers are widely available on the Web, thanks to the antitrust laws on competition.)

And the European Union has just made manufacturers’ lives a little more difficult, by publishing guidelines, passed last May, for selective and exclusive distribution, concession, and franchises, confirming that a supplier "may require quality standards for the use of the Internet site to resell its goods, just as the supplier may require quality standards for a shop or for advertising and promotion in general." But the manufacturer can only ban Internet or catalog selling if there is an objective reason (whatever that is), and, in any case, "cannot reserve to itself sales or advertising over the Internet."

Consumers still hesitate to buy online

Word-of-mouth reports of difficult checkout systems and lousy delivery keep many consumers from trying to buy their favorite products online. European e-tailers, for instance, have not yet developed effective fulfillment systems, according to Andersen Consulting (Spring 2000), which placed 445 test orders at 162 Internet stores, and found that two-thirds forgot to email the customer confirming the order, 73% neglected to email announcing that the product had shipped, and 26% just plain failed to deliver the product. This kind of performance cannot inspire confidence. In the U.S. the Federal Trade Commission fined 7 companies a total of USD1.5 million for failure to deliver goods when promised, last Christmas; in mid-November, 2000, the commission sent warnings to 100 top online retailers that they should not make holiday shipping promises they cannot keep. Web sites around the world are on notice that they need to run their fulfillment operations openly and efficiently.

Many shopping carts are being abandoned

80% of consumers abandon their attempt to purchase products online, according to separate studies by AT Kearney (November 2000) and Biz Rate (October 2000). According to Kearney, Web site malfunctions balked 40% of these people, but others said they fled because they could not find the product they wanted, or, finding it, felt they were being asked for too much information during the purchase process (52%). Lost revenues amounted to USD3.8 billion. BizRate said that on average shoppers abandoned between two and three shopping carts, with each cart representing USD175 in sales. In their survey, 21% of the consumers blamed slow-loading pages, and 40% balked at expensive shipping and handling charges that showed up during checkout.

Creative Good (October 2000) found fewer abandoned shopping carts, concluding that 43% of shoppers who came to the sites intending to buy ultimately failed to make a purchase. Reasons for giving up included slow-loading pages, difficulty in finding products, and problems with the checkout process. A massive 40% of the purchases failed during checkout, because consumers were confused about separate paths for new and returning customers, problems creating an account, and error messages that did not help.

B2B surging ahead of B2C

Business-to-business sales on the Web already dwarf consumer purchasing, and that trend will continue in the health and beauty area, destroying existing trade relationships, and making the Web a must-have distribution channel, according to Forrester Research (November 2000).

Highlights of Web sales around the world

US

Almost 2 of 3 online shoppers in the U.S. are women, according to PeopleSupport (May 2000), a statistic that makes sense because women are responsible for 80% of all household purchases. Women expect excellent customer service, and want to be able to communicate with a customer support representative via email or instant messaging, because most have only one phone line at home. The average U.S. woman on the Internet is white, aged between 45 and 54, earning more than USD75,000 per year, with children. Averaging all Internet users, male and female, the Gartner Group (November 2000) estimates that the average U.S. Internet user is 41 years old, earns USD65,000 a year, uses a PC at work, and has 2.81 children. (So the men online are younger, and earn less).

Health and beauty products brought in USD1.9 billion in revenues online last year, according to ActivMedia (January 2000). The U.S. health market online, including nutraceuticals and personal care products, should grow to USD 10 billion in 2004, according to Jupiter Communications. Competition will heat up as more sites battle over an expected USD2.3 billion in sales of personal care products, impelled by more consumers accepting online commerce, women increasingly dominating online buying, and sites spending more on marketing.

In the US, more people are going online for health and beauty info, soaring from about 45% in February to 54% of all Web users in late-summer—totalling some 40.9 million people, according to Cyber Dialogue (August 2000) and Jupiter Communications (February 2000). 14.6 million Web users (19%) shop for health and beauty products, and 4.6 million make purchases (6%).

Greenfield Online (July 2000) found that 40% of Internet users have visited online pharmacies such as Drugstore.com or PlanetRX, and 60% of those visitors have bought over-the-counter drugs, personal care products, or beauty products. What attracts these consumers? Saving time, avoiding crowds, finding lower prices, and having purchases delivered. But people who don’t drop into these sites say that they prefer to give prescriptions to a human being who can give them advice, take local insurance, accept returns, and keep customer information private, according to Insight Express (November 2000). Nevertheless, Forrester Research predicts that 8% of all retail sales in the health market will be made online, in 2004.

Europe

UK

Consumer sites based in the UK have seen an increase of 72% in visitors since January 2000, according to MMXI Europe, with retail sites getting over 4.3 million unique visitors in September. Two existing high-street retailers made the top 10 list.

Italy

The industrial north still has more Internet users than the south, but there are now 12 million online. The majority of new users are women, although men outnumber women online 2.6 to 1, according to Between (October 2000).Young people are more likely to have access to the Internet. 70% of students have gone online, compared with only 38% of workers, and 9% of the unemployed.

Middle East

Gulf Cooperation Council region

Representing only 12% of the Arab world’s population, these six countries have more than 60% of all Internet users in the Arab world, according to Insights Research (May 2000). In general, though, credit card penetration rates, consumer purchasing power are so low that there is little Internet penetration throughout the Middle East and North Africa. Still, the number of users is probably doubling every year, according to the Internet Arab World magazine, which figures that only 7/10ths of one percent of the 248 million inhabitants have Internet access.

With only 300,000 Internet users in 2000, and censorship filtering out rap music, and political opposition to the regime, most Saudi users go online at cybercafes. According to the Associated Press (September 2000), censorship slows access, and reduces speed in Qatar, Hahrain, Oman, and Kuwait, as well. In Syria, just 5,000 of the country’s 17.5 million people have access to the Internet.

Israel

25% of the population has Web access, but there is still little ecommerce. In January ultra-Orthodox Jews banned use of the Internet outside of work, and Web access is very expensive. So far, only 11% of Israeli companies sell products on the Web, according to the Israeli Manufacturers’ Association.

 

Africa

Held back by lack of expertise and infrastructure, high costs, long distances between sites and users, and low ad revenue, few companies are going online, and fewer still are selling goods on the Web, according to the portal woyaa.com (December 1999). The whole continent has only 3.1 million Internet users.

Asia/Pacific

Overview:

Women-oriented sites are springing up around Asia, where commerce is traditionally dominated by men. The number of Internet users in Asia is growing at a compound rate of 45%, according to Deloitte & Touche Tohmatsu (September 2000), so that the region should represent a quarter of the online population within three years. Unfortunately, 90% of the USD250 billion in regional ecommerce is business-to-business right now. Growth will be slow, too, reaching USD300 billion in 2003.

Australia

Australia has high Internet penetration, with 7.3 million users in 2.3 million households, but few online shoppers. 40% of Australians have Internet access, but only 12% of them expect to buy anything online in 2,000, compared to 40% in the U.S. and 25%in Canada, according to Jupiter Communications (November 2000). According to ABS, households with incomes of USD27,950 or more were twice as likely to have access to a home PC, and three times as likely to have Internet access, compared to households earning less (September 2000).

Hong Kong

Hong Kong’s 1.2 million Internet users are spending about USD601 million online, but only 10% of that figure is consumer retail sales, and those focus on groceries and books, with health and beauty products trailing way behind. With plenty of local stores in the densely populated neighborhoods, users may not need to shop online as much as people in more spread-out areas, such as the U.S., Canada, and Australia, according to eMarketer. Still, a survey by American Express (October 2000) found that Internet users’ interest in online shopping was higher in Hong Kong than in the U.S or Sweden.

Taiwan

Half a million people shop online in Taiwan, almost double the number in 1999;and they are spending more online than before. About a million people used the Web to research products that they then bought in a brick-and-mortar store. Problems with fulfillment and security have deterred some of these users from making actual purchases online, according to Taylor Nelson Sofres.

Japan

Japan has 27 million Internet users, but Internet access seems concentrated among the wealthy city-dwellers. Nikkei Business Publications (November 2000) reports that almost half the people with annual incomes over USD93,000 have Internet access, but only 11% of those who earn USD32,5000 a year. 30%of the urban population has gone online, but only 18% of the people in small towns and villages. In November, the government was promoting the IT Basic Bill, to remove regulations that have impeded progress toward e-commerce. In the last year, 50 new women-oriented sites have sprung up in Japan, but analysts doubt their profitability, according to the Los Angeles Times (November 2000).

India

Internet use is still low, according to eMarketer (October 2000). 2000 revenues should be a mere USD75 million, rising to USD254 million by the end of 2001, as cybercafes expand in major cities, attracting the young and affluent. The 1.5 million Indian Internet users represent less than two-tenths of one percent of the population. Poor telecomm infrastructure, lack of personal computers, and extreme poverty everywhere in the subcontinent have limited the growth of the Internet.

China

China should double its number of Internet users every six months. Right now, the 16.9 million Chinese Internet users make up 1.3% of the total population of 1.275 billion people—way ahead of India. The Chinese government is going to spend USD750 billion on infrastructure over the next two years.

South Korea

15.3 million users puts South Korea behind China and Japan, but ahead of Australia.

Latin America

With a painful division between the very rich and the masses of poor people, Latin American dotcoms have to focus on selling to the top 15% of the population, who are young, educated, cosmopolitan, and hip to high technology, according to eMarketer (November 2000). Despite 15.26 million Internet users in the region, the Financial Times says that many Latin American ecommerce sites are facing difficulties and shutdowns. Nevertheless, the Boston Consulting Group estimates that online retailing this year will be worth USD580 million in the region, up 400% from last year. With 8 million people online, half of them under 24 years old, according to Media Metrix, Brazil has the largest ecommerce market in the region, accounting for over half of the entire market. But according to BCG, Mexico and Argentine are catching up, with expected sales of USD91 million and USD82 million respectively. Many customers ranked local web stores poorly on customer service, product selection, and ontime delivery. In the BCG test of 118 commerce sites, almost half failed to respond to email inquiries, and 42% of the goods arrived late.

How many online?

In 2000, Internet access has soared outside the U.S., supported by governments, retail banks, credit card companies, and national portals bringing more consumers online. In September, 377.65 million people were using the Internet, according to Nua Analysis.

 

source Activmedia

source: Data Monitor

from Forrester Research