Online retailer's profit margins growing

June 1st, 2004      Source: eMarketer.com

Forrester Research examined 150 retailers selling and marketing online, including Web-based retailers, catalogers that also sold online, and traditional brick-and-mortar stores. For 2004, Shop.org and Forrester expect online retail sales, including travel sales, to grow 27% over last year to reach $144 billion.

Almost four-fifths of online retailers had profitable operating margins in 2003, the study indicated. Among the sectors that should experience very high growth in online sales this year are health and beauty (61%), apparel (42%) and flowers, cards and gifts (41%).

Shop.org believes that online retailers have found the right formula for turning a profit, figuring out how to sell a product effectively and acquiring and retaining customers. More and more online retailers are achieving profitability. Compared to only 56% on 2001, almost four-fifths, 79%, reported profitable operating margins in 2003.

The next step for many Internet retailers is to boost profits by cutting costs. While firms were successful in reducing marketing costs, on average halving them from $8.00 per order to $4.00, those gains were offset by increases in customer service and fulfillment expenses. With the economy on the rebound, keeping costs down will let online retailers reap the increases in revenue that are surely to come.

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