In an ominous harbinger of holiday spending, comSCore reported today that US online spending last month grew by only 1 percent over October 2007, down from the 5 percent annual growth rate recorded in September. October saw the lowest monthly growth rate since comScore began tracking e-commerce in 2001.
Retail e-commerce growth rates have fallen from a high of 28 percent in August 2007 to a growth rate of just 1 percent in October 2008. October represents the sixth consecutive month this year of slowing growth rates.
The overall softness in online retail spending was precipitated by curtailed spending across mid to lower income segments, with households earning less than $50,000 reducing their spending compared to a year ago.
Technorati Tags: eCommerce, economic-data, online-retail, online-shopping, retail
Not surprisingly, fuel economy is now as important to car buyers as safety and reliability, according to Capgemini’s latest annual Cars Online survey.
Involving over 3,000 consumers in eight countries (Brazil, China, France, Germany, India, Russia, UK and US), the study identifies a number of key findings:
- For the first time in the report’s ten year history, a vehicle’s fuel economy has been found to be as important to consumers as safety and reliability, a result of rising fuel prices and increase concern about the environment.
- There are significant differences between the mature and developing markets, and also within the emerging markets of Brazil, Russia, India and China (the BRIC nations).
- There are important implications for vehicle manufacturers that do not meet customer needs - three quarters of respondents surveyed said they would switch from a particular brand or dealer if their needs were not met, such as receiving a speedy response to enquiries.
- People are also increasingly relying on the web for presales information, and are looking more and more to complete their purchases online.
The report also reveals that customer satisfaction has dropped in recent years: two thirds of respondents worldwide said they were satisfied with the vehicle buying process, a decline from ten years ago when 80% of consumers said they were satisfied.
The study found that the more sophisticated a market, the lower the levels of customer satisfaction.
Technorati Tags: Add new tag, Auto-Industry, automobiles, BRIC, green-tech, online-shopping
The pace of growth in online retail spending slowed during the past two months, despite the distribution of economic stimulus payments, new data from comScore shows.
The year-on-year growth rate fell from 15% in April to 12% in May and 11% in June. Total U.S. online retail sales (excluding travel) reached approximately $31 billion in Q2 2008.
ComScore said its research reveals that fully two thirds of consumers said they had not planned to spend their stimulus checks and rather intended to use the cash to pay off debt or put the money into savings.
In addition, it’s likely the impact of the stimulus may have been felt more offline, where a variety of merchants made it particularly easy for consumers to cash their checks at retail stores.
Video Games, Consoles & Accessories remains one of a handful of high-performing online retail categories, rising 73 % in Q2 2008 versus the same quarter year ago on the strength of consoles like the Nintendo Wii. Furniture, Appliances & Equipment (up 65%) was another top performer, while Home & Garden (up 23%), Event Tickets (up 22%), and Sport & Fitness (up 21%) also performed significantly better than the average.
Flowers, Greetings & Miscellaneous Gifts, Jewelry & Watches, Computers, Peripherals & PDAs, Toys & Hobbies, and Music, Movies & Videos all experienced declines versus last year.
Technorati Tags: online-shopping, retail
The death rattle of the monoline bond insurance business as we have known it could be heard loud and clear this week, with Moody’s whacking in what looks like the final nail in the business model with its downgrades of Ambac (NYSE: ABK) and MBIA (NYSE: ABK). The companies may yet end up surviving, but not in anything like the same form. FT Alphaville offers a good roundup of their unraveling. The monolines’ travails puts credit default swaps in the spotlight, notably in how they might be treated in a bankruptcy scenario.
The Good (Goldman Sachs), the Bad (Morgan Stanley) and the Ugly (Lehman Bros) survived their first quarter earnings announcements in decidedly varied shape, but the debate rages on as to how much more subprime and related writedowns and losses lie in store for them and other financial institutions. Subprime-shorting hedge fund darling John Paulson thinks banks are only about a third of the way through $1.3 trillion in writedowns and losses. Yet the OECD this week reiterated its estimate of eventual losses at $300-$400 billion, in its latest Financial Market Highlights. The OECD argues that “mark-to-market” estimates are not always a reliable indicator and says that while such losses are quite substantial, “relating them to the size of the banking sector more generally they seem less burdensome.”
Also, a USD 400 billion loss would correspond to less than 2% of the USD 22 trillion US equities outstanding, and to a not very abnormal daily decline in the US stock market.
Part of the discrepancy among estimates likely lies in what is included, with lower ones limited to specifically subprime mortgage instrument losses and larger ones also including broader credit markets losses from automobile, credit card and other debt.
Evidence that more pain lies ahead came from Citigroup’s admission that it may have to take “substantial” subrime-related writdowns in the current quarter.
Persistent high oil prices appear to be driving changes in consumer behavior, including reduced automobile traffic (but increased online traffic) and a shift to more fuel-efficient vehicles. The big question is the extent to which these changes will stick, or whether consumers will revert to old habits once they adapt to higher prices.
Research Recap Quote of Week:
In effect, the CDS market has morphed into a highly speculative, unregulated arena where fortunes are made and can be quickly lost — quite the opposite of its original intent, which was to create a vehicle for mitigating risk. - Jim Kaplan, Audit Integrity.
Technorati Tags: credit-default-swaps, energy, investment-banking, monoline-insurers, online-shopping, subprime-mortgage, Zeitgeist
A couple of conflicting economic indicators emerge from comScore’s latest web site rankings. Other than flowers (driven by Mothers’ Day), the money-saving coupon site category showed the sharpest month-on-month increase in May. However, jewelry and luxury goods also posted a strong increase.
The coupon category grew 11 percent to 24.5 million visitors during the month, as each of the top five sites in the category experienced double-digit gains. Coupons, Inc. led the category with 7.2 million visitors (up 20 percent), followed by Eversave.com with 5.2 million visitors (up 13 percent) and CoolSavings.com with more than 5.1 million visitors (up 24 percent).
Google Sites maintained its #1 position in the Top Properties ranking, reaching 143.4 million Americans in May. Yahoo! Sites ranked second with nearly 143 million visitors, followed by Microsoft Sites with 121.3 million visitors. Time Warner – Excluding AOL moved up one position to #9 with 56 million visitors. IRS.gov jumped 14 positions to #20 with 31 million visitors, propelled by Americans checking the status of tax refunds and stimulus checks.
Technorati Tags: internet, internet-commerce, online-shopping, search
Online retailers are eager to experiment with Social Computing this year, according to Forrester Research. However, Forrester advises against “reckless or experimental spending” on customer acquisition and on social networking.
Social Computing efforts continue to be largely experimental with little correlation to sales.
Therefore, online marketers are better off using core tactics like email, Forrester says in The State of Retailing Online 2008: Marketing.
The report finds that with the exception of the travel industry, US online retailers are continuing to grow at a significant pace, even as they swim against the current of a worsening economy. US online retail activity this year is expected to increase to 7% of all US retail sales from 6% last year. In a separate eCommerce Forecast Forrester projects 10.7% of all retail sales will be transacted online by 2012.
The same five categories that drove nearly 50% of all online retail activity are expected to continued to dominate this year. High-ticket durables, computer products and clothing products are the most important sectors.
Online retailers are focussing much of their marketing energy on direct mail campaigns, Forrester says.
Indeed, online retailers in general show a considerably stronger predilection towards metrics-driven marketing — that is highly targeted campaigns — than traditional retailers. To that end, paid placement on search engines is the single most popular online advertising tactic.
Technorati Tags: online-shopping, social-networks
Online information is increasingly used for research, but only a small percentage of searches lead to online purchases, according to a survey from the Pew Center for Internet and American Life Project. The survey, focussing on shopping for music, cellphones and housing showed that, more often than not, purchases are consummated offline and post-purchase online commentary is only a small part of a typical shopper’s activities.
The online mall helps people sort through product choice, but it is not the only method they use to assess products and not a place where people often close the deal.
Other key findings:
Search: Online information can make product research more efficient, and it can be particularly useful for a feature-rich product. But it is not the only tool buyers use to gather information.
- Influence: Online information is generally modest in its impact on decisions, but looms larger when a purchase requires a big commitment.
- Participation: Rating products after purchase is surprisingly rare, but music buyers make direct
connections with artists after they have bought their tunes.
- Disintermediation: When it comes time to make the transaction, it is still an offline world. But fewer barriers between buyers and sellers can help consumers get better deals. Online resources augment the shopping experience in tactical ways for users.
- The music-purchasing experience: Digital resources play an important role that allows consumersto engage with music after it is bought, but online resources do not play a large role in the musicpeople choose or how they consume it.
- The cell phone-purchasing experience: Online information is influential for cell phone buyers as they do comparison shopping. In addition to consulting websites of vendors, they also go to stores and consult salespeople as they sort through options.
- Hunting for housing: Online information reduces search costs for people looking for a new place tolive, but online resources supplement buyers’ toolkits. They don’t substitute for offline resources.
Technorati Tags: eCommerce, online-shopping
With the global credit crunch and the possibility of a significant recession on everyone’s minds, Corporate Board Member assembled a number of legal, advisory and financial experts to discuss the state of M&A activity. The results, which can be found in a free Special Supplement, indicate cautious optimism for several sectors.
So while 2008 may not be the year of the megadeal, there are still quite a few viable acquisition targets, and strategic players, waiting in the wings.
“While deal pace is not expected to break records or yield many blockbusters, M&A activity across most sectors should move along at a moderate clip in 2008. Distressed and nontraditional M&A activity may pick up, especially in the retail sector, which is influenced greatly by the spending habits of the middle-market consumer. Deal drivers will include companies’ need to raise capital and reduce risk by shedding noncore businesses, such as Banco Popular selling its U.S. consumer finance business to AIG.”
The weak dollar will also provide a strong impetus for a number of foreign acquisitions of US firms and firms, especially for European and British firms.
While availability of credit is down signficantly since the height of M&A activity in 2007, there are sources of capital that will be able to finance a large number of mergers and acquisitions. “With over $3 trillion in assets, sovereign wealth funds will also provide alternative financing conduits, whether through partnerships with private equity or investments in companies that choose growth by acquisition.”
…when companies want to resuscitate their stock prices, consumer businesses will dispose of their noncore assets and undergo product rationalization… which will obviously add to deal volume.
Commenting on the effect of a recession, several of the analysts focused on specific industries: “On the restaurant side, we tend to see the middle get squeezed. So in a challenging economic environment, you see high-end restaurants such as Morton’s not as affected as, say, Applebee’s, because many consumers will choose to eat at a quick-serve or fast-casual restaurant as opposed to a full-service establishment.”
Interestingly, due to its success, the online retail industry will likely see less M&A activity than its brick-and-mortar counterpart. “In fact, 2007 was Amazon’s best holiday season in its 13-year history.”
Other highlights:
- Private equity and strategic buyers dominate the broad consumer business industry, where, despite the threat of a recession, the luxury goods sector is expected to fare well.
- Product innovation, convergence, and cost control are among the many factors driving activity in the technology, media and telecommunications sector, where volume is expected to pick up in the latter part of 2008.
- High energy prices and strong cash flow, along with continued interest from foreign buyers due to a weakened dollar, have helped create a favorable deal environment for the utilities and energy sector.
Technorati Tags: luxury-goods, M&A, Media, online-shopping, restaurant, retail, technology, telecom, utilities
The relatively new question of how brick-and-mortar stores interact with online and catalog retailers has been a point of confusion for many businesses. A new working paper* by the Harvard Business School suggests that the relationship between these types of retail operations is situational in the short term — beneficial for some, harmful for others.
In the long run, however, the presence of a physical store in the market will generally help online and catalog-based retailers, the paper suggests.
For catalog operations, the opening of a new store will cost the catolog an average of 12% in the short term.
However, over the longer term, a retail store is complementary to both catalog and online channels and allows them to grow sales, new customer household acquisition, and repeat customer household purchasing frequency at a greater than expected rate which more than makes up for the short term sales cannibalization.
While the results of the study show “catalog and online sales exhibit similar patterns of complementary effects,” online operations do not experience the same type of cannibilization by new retail branches that catalog businesses fall victim to in the short term.
Similarly, the effects of brick-and-morter branches are greater on online retailers, who show a 34% increase in sales from the presence of retail branches, compared to the relatively minor 0.4% that catalogs experience.
“This asymmetry is due to an important difference between catalog and online sales channels which offers insight into the origins of demand for online and catalog retailing”
The paper sounded one note of caution: “In the early days of the Internet as studied here, online sales were not cannibalized by the opening of a retail store; however, as online penetration grows and as shopping via the online becomes more predominant, the opening of retail stores may begin to cannibalize online sales.”
*Adding Bricks to Clicks: The Effects of Store Openings on Sales Through Direct Channels (Jill Avery, Simmons School of Management; Thomas J. Steenburgh and John Deighton, Harvard Business School; Mary Caravella, University of Connecticut).
Technorati Tags: online-shopping, retail
More than 85% of the world’s online population has used the internet to make a purchase, increasing the market for online shopping by 40% in the past two years, cccording to the latest Nielsen Global Online Survey on internet shopping habits.
Globally, more than half of internet users have made at least one purchase online in the past month, according to Nielsen.
Among internet users, the highest percentage shopping online is in South Korea, where 99% of those with internet access have used it to shop, and 79% of these internet users have shopped in the past month. Other prolific shoppers are in the last month are: the UK (76%), Switzerland (67%) and the US (57%.)
The most popular purchased items over the internet are books,clothing/accessories/shoes, videos/DVDs/games, airline tickets, and electronic equipment.
Online shoppers tend to stick to the shopping sites they are familiar with, with 60% saying they buy mostly from the same site
Meanwhile, Forrester Research expects growth in eCommerce to slow this year as the industry will be hit exceptionally hard by expected declines in consumer spending.. However, the industry will still grow at a rate of roughly 17%, Forrester says in its Top US eCommerce And Online Retail Predictions For 2008.
Much of that growth will result from overseas expansion, as ecommerce firms take advantage of the weak dollar. European and Asian markets are seen as particularly attractive options for US ecommerce firms.
Much of the growth in 2007 was, in fact, led by the adoption of revenue-driving initiatives such as alternative payment adoption and improved Web site operations.
Another developing feature of eCommerce this year: increased seasonality in the sales numbers. That is to say, holiday sales will be more important than ever.
Other trends for 2008 identified in the report:
- More made-to-order merchandise initiatives.
- A more mature interpretation of multichannel integration.
- Diminished expectations for Social Computing.
- Broad adoption of rich Internet applications (RIAs).
In a related report, US eCommerce Forecast: 2008 To 2012, Forrester says US online retail reached $175 billion in 2007 and is projected to grow to $335 billion by 2012. Business-to-consumer (B2C) eCommerce continues its double-digit year-over-year growth rate, in part because sales are shifting away from stores and in part because online shoppers are less sensitive to adverse economic conditions than the average US consumer.
Despite the continued growth of the channel, online retailers face several challenges to growth.
Technorati Tags: eCommerce, internet-commerce, online-shopping