Since the inception of the Web, online commerce has enjoyed hypergrowth, with annual sales increasing more than 25 percent over all, and far more rapidly in many categories. But in the last year, growth has slowed sharply in major sectors like books, tickets and office supplies.
Growth in online sales has also dropped dramatically in diverse categories like health and beauty products, computer peripherals and pet supplies. Analysts say it is a turning point and growth will continue to slow through the decade.
The reaction to the trend is apparent at Dell, which many had regarded as having mastered the science of selling computers online, but is now putting its PCs in Wal-Mart stores. Expedia has almost tripled the number of travel ticketing kiosks it puts in hotel lobbies and other places that attract tourists.
The slowdown is a result of several forces. Sales on the Internet are expected to reach $116 billion this year, or 5 percent of all retail sales, making it harder to maintain the same high growth rates. At the same time, consumers seem to be experiencing Internet fatigue and are changing their buying habits.
John Johnson, 53, who sells medical products to drug stores and lives in San Francisco, finds that retailers have livened up their stores to be more alluring.
“They’re working a lot harder,” he said as he shopped at Book Passage in downtown San Francisco. “They’re not as stuffy. The lighting is better. You don’t get someone behind the counter who’s been there 40 years. They’re younger and hipper and much more with it.”
He and his wife, Liz Hauer, 51, a Macy’s executive, also shop online, but mostly for gifts or items that need to be shipped. They said they found that the experience could be tedious at times. “Online, it’s much more of a task,” she said. Still, Internet commerce is growing at a pace that traditional merchants would envy. But online sales are not growing as fast as they were even 18 months ago.
Forrester Research, a market research company, projects that online book sales will rise 11 percent this year, compared with nearly 40 percent last year. Apparel sales, which increased 61 percent last year, are expected to slow to 21 percent. And sales of pet supplies are on pace to rise 30 percent this year after climbing 81 percent last year.
Growth rates for online sales are slowing down in numerous other segments as well, including appliances, sporting goods, auto parts, computer peripherals, and even music and videos. Forrester says that sales growth is pulling back in 18 of the 24 categories it measures.
Jupiter Research, another market research firm, says the growth rate has peaked. It projects that overall online sales growth will slow to 9 percent a year by the end of the decade from as much as 25 percent in 2004.
It may very well be that some stores are sprucing up and beefing up customer service to make them more appealing, but in a world in which Circuit City just fired thousands of experienced workers and hired new ones at three bucks an hour less becaue they didn't want to pay for experience, I don't buy it. Yes, my local K-Mart has been spruced up with new flooring and brighter lighting and Sears Craftsman tools and Kenmore appliances, but it still takes just as long to check out.
But if you look at reports for May retail sales figures, they tend to bear out a general slowing down of spending among those companies catering to Americans of modest means:
Consumers' "worries about gas prices have increased from January through April," Wal-Mart said in a June 7 statement. The company, based in Bentonville, Arkansas, predicted June same -store sales will be unchanged to a gain as much as 2 percent.
[snip]
Consumer spending and retail sales were "generally up," and several banks reported faster sales of "luxury items" than lower-end goods, according to the Fed's compendium of regional economic activity, known as the Beige Book, issued this week. In four districts, Fed contacts reported sales were "disappointing or below expectations."
Luxury goods tend not to be sold online, whereas those goods that represent discretionary spending -- books, CDs, DVDs, computers for home use, low-end electronics, and the like -- are more likely to be purchased online.
Fuel prices have also caused already-high shipping costs to shoot through the roof. Yesterday I bought a roll of edging veneer from Rockler, and a $2.99 roll is going to cost $6.98 to ship. Five filters for my furnace's dehumidifier cost over $10 to ship. On the other hand, how long would it have taken me to track down these things in meat world? In even ONE Home Depot store? This way the whole mess took me about fifteen minutes.
Given the amount of advertising revenue the New York Times receives from brick and mortar retailers, it's not surprising that it would run a story gleefully hailing "internet retailing fatigue" among the American people. But the truth is probably more one of a retail channel that is maturing into a more modest, normal growth track. There are those who will never shop online no matter how easy it is, and those who, for reasons unknown to me, actually enjoy the experience of going to a mall and shopping.
For me, you can move it all outdoors, cover it with stucco, call it a Towne Center instead of a strip mall, and put in as many Panera Breads and Green Mountain Coffees as you want -- it's still a shopping mall, and it still carries a bunch of clothes I can't wear and cooking supplies I'll never use and furniture I don't need. When I buy software, or books, or hard-to-find items, or bulky goods I don't want to have to rent a truck to shlep home, you'll still find me online.
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