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Online retail sales and profitability climb

2004 online sales rose 23.8% to $141.4 billion. Excluding travel, online retail sales also rose 23.8% to $89.0 billion, representing 4.6% of total retail sales, according to Forrester and Shop.org

The report predicts that online retail sales (including travel) will rise 22% to $172.4 billion this year. Sales excluding travel are expected to reach $109.6 billion.

Women shopping more online

Several retail categories will experience steep growth this year, largely due to the growing acceptance of online shopping by women.

In fact, categories with products purchased largely by women will see the most growth this year. Online sales of cosmetics and fragrances are expected to grow 33 percent while sales of over-the-counter medications and personal care will rise 32 percent.

Additionally, sales of jewelry and luxury goods (31%) and flowers, cards, and gifts (30%) are expected to rise dramatically.

Multi-channel retail sales grow

Multi-channel retailers again posted record profitability last year. Last year, online retailers improved overall operating margins to 28 percent from 21 percent in 2003. Catalogue-based retailers continue to boast the best operating margins, which rose to 32 percent last year from 28 percent in 2003.

Retailers reported that the Web influenced 20 percent of in-store sales. As a result, retailers are striving to integrate their stores and websites, which signals cooperation among channels.

Last year, almost all (92%) multichannel retailers included URLs on in-store materials, up from just 77 percent in 2003. The majority of retailers (81%) also used websites to tout their stores.

Additionally, 45 percent allowed consumers to purchase and redeem gift cards online and in stores, up from 30 percent in 2003. And nearly one-fourth (24%) of retailers offered in-store product availability on their websites last year.

Search engine marketing generates most new customers
This year, search engine marketing appeared as the clear leader as a source of new customers, with retailers reporting that search engine marketing delivered 43 percent of overall customers to their sites.

In 2004, 87 percent of retailers who participated in the study used pay-for-performance search placement and spent more than twice as much from their marketing budgets on this category than they did in 2003 ($877,630 in 2004 vs. $399,923 in 2003).

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