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Monday, May 31, 2004

Internet Merchants Show Strong Numbers via NYTimes

Online retailers executed a sharp turnaround to profitability last year, according to a report released by Shop.org, an industry trade group. The numbers indicate that some of the reasons Web merchants attracted investors during the dot-com boom were not so far-fetched after all.The annual report, based on surveys of 150 online retailers earlier this year, indicates that merchants generated profit margins of 16 percent last year, compared with losses of 15 percent in 2002. Offline retailers, by contrast, typically generate profits of 3 to 10 percent, according to the study.Excluding travel, online sales grew 34 percent last year, to $72 billion, according to the Shop.org report, a figure that represents 5.4 percent of total United States retail receipts in 2003. According to Shop.org's estimates, consumers will buy 43 percent of their computer hardware and software online this year, and 23 percent of their entertainment tickets, 22 percent of their travel and 19 percent of their books. But nearly all other categories are at or below 10 percent. Just 4 percent of home furnishings, for instance, are bought online, and Web purchases represent 1 percent of food and beverage sales.Many companies that hedged their e-commerce strategies in the past did so by either relying on outside warehouse operators to "pick, pack and ship" their goods, or by asking manufacturers to ship directly to consumers. But with companies sensing the opportunity in online sales, they have had to assume more control over shipping processes - often investing in warehouses and owning more of the inventory, to insure smooth deliveries and no unexpected merchandise shortages. This segment is bound to get stronger and stronger - tipping point is reached when 10% of retail revenues happen through online sales -Korea has acheived this in select merchandise.

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