Chasing Retail's Tail
From the January 01, 2000
issue Jeffrey
Davis
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Net impact: $20 billion
(1999)
| While it has already been
eclipsed by business-to-business commerce — $20 billion annually compared
to more than $100 billion in 1999, according to Forrester Research — Web
retailing remains the poster child for the Net Economy. From Amazon.com to
the breed of pure-play Web stores it spawned, from eToys to eBay, the
Net's biggest consumer businesses have built the kind of mainstream brand
power that used to take decades to achieve. Still, even at $20 billion and
counting, Net retail is just a 0.8 percent fly on the wall of an overall
$2.6 trillion retail industry in the United States.
In the beginning...
There was a restless, 30-year-old hedge fund manager named Jeff Bezos.
Early in 1994, working for D.E. Shaw in New York City, Bezos began
researching the commercial possibilities of the Net. A year later, Bezos
drove west, raising venture funds for a new small online book shop
(originally called Cadabra.com), to be launched from his garage in
Bellevue, Wash. The rest is some astonishing retailing
history: Running on a Website and a warehouse, by its third year Bezos's
precocious Amazon.com toppled $150 million in annual sales — a milestone
that Wal-Mart founder Sam Walton needed 12 years (and 78 stores) to reach.
Today, Amazon might still look Lilliputian sitting next to
America's fattest retailer (Wal-Mart's estimated 1999 sales were $162.8
billion), but Bezos's little Web shop now is capitalized at more than $28
billion, has 12 million customers, and has branched out into auctions,
electronics, music, videos, and gifts. Its biggest landlocked competitors
— Barnes&Noble and Borders — are together worth less than $3 billion.
Although Prodigy and America Online had sown some seeds of
online retail — Prodigy was running text ads and selling flowers in the
early '80s — Amazon's arrival in 1995 more definitively sparked the Web's
retail gold rush. Along with books came big budding markets in personal
computers, CDs, flowers and gifts, clothes, and food — the basic
ingredients of your average strip mall, right? The
Web-as-mall concept soon had some of America's most popular brands
smelling blood. But lame, circa-'96 attempts at Web megastores — such as
Time Warner's DreamShop and IBM's World Avenue — all quickly tripped over
failed assumptions, namely that online retailing simply meant cutting and
pasting a suburban tract mall into a Website. Bezos, meanwhile, did his
hyena-laugh through a $54 million public offering.
Serious business
In November 1998, the wizards at New York-based Jupiter Communications
issued the ecommerce forecast heard 'round the world: revenues from online
holiday-season shopping that year would top $2.3 billion — an appraisal
that seemed to wake up the masses (and the media) to the Web's potential.
Why? By year-end '98, 55 million Americans were active Net
users; and 34 million people were already shopping online. Total Web sales
for the year shot past $8 billion, nearly triple from '97. And holiday
sales even surpassed Jupiter's optimistic guess. "It was a wake-up call,"
says Forrester senior retail analyst Seema Williams. "Nobody believed any
of this before holiday '98." Web retail sales have jumped
from a mere $700 million annually in 1996 to an estimated $20 billion in
1999, according to Forrester, and $184 billion by 2004. Some major product
categories have paved the way: travel services ($5.95 billion in 1999
sales), computer hardware and software ($5.8 billion), books ($1.7
billion), gifts and flowers ($730 million), music ($540 million), and
apparel and footwear ($460 million), according to eMarketer.
Mainstream Net adoption is only one reason behind the
growth. Innovations such as the online shopping cart — designed by AOL and
perfected by Amazon and others — deserve more credit. Next came
one-click-buying, further putting consumers, not merchants, into the
driver's seat of the most successful Websites.
Next steps
Net retail already has enough mainstream momentum to propel growth
across all the big product categories. Other shifts and innovations lie
ahead: 1. Women take control. Women make or
influence 80 percent of household sales in the United States, according to
WomanTrend, despite the fact that they make up 51 percent of the
population. Expect the Net retail industry to shift its marketing focus
heavily in their direction. "It's no longer a [demographic] anomaly,
predominantly men," says Kate Delhagen, formerly Forrester's head retail
analyst and now vice president of business development at lucy.com.
"Consumers have reached a sophisticated buying stage, and that will
characterize 2000." 2. The untapped get
tapped. Two highly touted markets — $509 million health and
beauty, and $513 million grocery — still lag behind expectations. "Of all
the categories," says Delhagen, "consumer behavior here is most
entrenched.... It's hard to move the masses out of a rut." Expect the
masses to come out of the woods this year. 3. More
"click and mortar." Traditional retailers — Circuit City, Crate
and Barrel, Sears, Toys R Us, Wal-Mart, and Federated Department Stores —
missed the boat in 1995 and 1996, but rest assured they "get it" now, and
are attempting re-entry, this time around with more money and smarts.
Watch out.
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