Retail E-Commerce and the Economy

MAY 19, 2008

Fewer new online buyers, less growth

The US Department of Commerce released retail e-commerce sales data last Thursday. Online sales grew by only 13.4% during Q1 2008 over Q1 2007.

That is quite a drop-off from recent e-commerce growth rates. For instance, in 2007 total e-commerce sales grew by 19.8% over 2006.

"This shows that the economic slowdown is having more of an effect than people suspected," said Jeffrey Grau, senior analyst at eMarketer. "It's accelerating existing trends."

Mr. Grau said that retail e-commerce sales growth would have slowed even without any concern about the economy. Since 2003, the real engine of e-commerce growth has come from increased sales to existing online buyers rather than new buyers.

E-commerce sales growth is still higher than overall retail sales growth, which has been 6% at most over the past five to six years. In contrast, retail e-commerce sales growth has been about 25% or more during the same time.

One reason for slowed overall retail sales growth is that existing online buyers are doing more of their buying on the Internet instead of in stores, according to USC Annenberg School Center for the Digital Future data. The organization reported that not only did large percentages of consumers say their online buying led to decreased offline buying, but that the number is growing.

This shift to online buying is happening because consumers have become more confident shopping on the Internet, which has also improved satisfaction levels. Additionally, merchants have figured things out operationally as far as product information, stock and delivery.

Although the economic slowdown is affecting retail e-commerce sales as well as retail sales overall, Mr. Grau said that online stores likely will fare better than brick-and-mortar ones—partly because of the downturn.

"Some people may shift their spending online to save on gas and because they think they can get a better deal," Mr. Grau said.

The eMarketer US B2C E-Commerce report will be published this month. Click here to be notified when it is released.