New media
Forecast: Online retail will hit the wall
By Heidi Dawley
Jan 30, 2007, 01:05

For years online retail sales have been growing at a double-digit pace, arousing fears of just what the future might hold for brick and mortar stores.

Suddenly that future doesn’t look so grim. Rather than gobbling up much of retail, online will settle for a smaller portion. A new forecast from JupiterResearch predicts a slowing in the growth of online retail sales and an eventual plateauing at between 10 to 15 percent of total sales.

And yet, in a finding of huge significance for online advertising, the forecast sees the growth of the internet as an influencer of sales continuing to grow, and it predicts that by 2011 nearly half of all U.S. retail sales will be either influenced by or transacted on the internet.

“Even though sales online may plateau at 10 to 15 percent, the influence is so much greater than that,” says Patti Freeman Evans, a senior analyst of the retail industry at JupiterResearch.

“We expect continued eyeballs and growth in the amount of research people are doing, and that is a very fertile pool for advertisers.”

Her report, which looks out five years, forecasts that U.S. online sales will grow 16 percent in 2007, to $116 billion. The growth rate will then begin to decline, falling to single-digit increases of 9 percent in 2010 and 8 percent in 2011. And in that year, JupiterResearch forecasts that online sales will account for 6.6 percent of total retail sales.

“The online market place is maturing a little sooner than we thought,” says Freeman Evans. In terms of dollars, the yearly increases will remain in the $12 billion to $15 billion range as the pace of growth slows from a larger base.

The reasons for the sooner-than-expected slowdown: New buyers will continue to come online and existing buyers will continue to spend more, but neither will grow at levels analysts had long expected, predicts the study.

Further, the number of new buyers coming online has nearly reached the saturation point in key demographics, among people who are significant spenders.

As a result, growth in the coming years will mainly come from what the report terms wallet shift, or increased spending from folks already shopping online. But then growth in wallet shift will also begin to slow by 2011, signifying a maturing market. All these forecasts are assuming that no new technology that fundamentally changes online shopping comes along.

And yet through all this more and more people will continue to come online to research their purchases, whether offline or on, and they will be influenced while surfing by a variety of sources, ranging from banner ads to product reviews to information posted on company web sites, according to the forecast.

Offline sales influenced by online research are expected to grow at a compound annual average of 12 percent through 2011, reaching $1 trillion by 2011, and by that year some 47 percent of purchases will be either online or influenced by online.

JupiterResearch notes that the internet is a bigger influencer in some categories of purchases than others, with categories that are endemic to the internet--PCs, software, and consumer electronics--being the most influenced. An example: 12 percent of consumer electronic retail sales will occur online by 2011, but add in offline purchases that have been influenced by online research and that figure will rise to 81 percent.

Meanwhile, in online ratings for the week ended Jan. 21, the top five parent companies were Yahoo, Google, Microsoft, MSN/Windows Live and AOL. The top five brands were also familiar, Yahoo, Google, MSN/Windows Live, AOL Media Network and Microsoft.

Experian Group Limited was the top advertiser with 8.72 million impressions generated, 2.7 million more than No. 2 NexTag. With 25.01 million ads served, Yahoo was again the top advertising site, more than tripling No. 2 MySpace at 7.6 million.

Sessions per were even to last week at 17, with domains visited per person also steady at 40. Average PC time per person per week was essentially unchanged at 17 hours and 19 minutes.