Google: $225 billion ecommerce play

The industries Google is “revolutionizing” and “disrupting,” while displacing entrenched incumbents, includes the retail sector, according to Piper Jaffray & Co.managing director Safa Rashtchy.

The industries Google is “revolutionizing” and “disrupting,” while displacing entrenched incumbents, includes the retail sector, according to Piper Jaffray & Co.managing director Safa Rashtchy.

The Wall Street analyst told ecommerce firms and multi-channel retailers at the Shop.org conference in New York City yesterday that search engines, and Google.com in particular, are the “new, trusted ecommerce mediums.”

Appearing with Matthew Fassler, managing director of Goldman, Sachs & Co., at the morning’s featured session, "The Wall Street View of E-Commerce and Multichannel Retailing," Rashtchy put forth that search is fast becoming the “trusted medium to guide consumers.”

For Rashtchy, the new retail order includes a new media, search:

Traditional retailing: brick & mortar stores,
Online retailing: ecommerce pure plays,
Search: Google.com shopping exploration platform.

Piper Jaffray believes ecommerce is an “enticing growth market”:

500,000 plus ecommerce merchants and sellers in the U.S.,
$132 billion in U.S. sales and growing at 18%,
2010 projected $225 billion ecommerce spend.

Google is an important player in the ecommerce arena, according to Rashtchy. He outlined two types of consumer behavior online:

Direct URL Navigation
Consumer is not sure about particular product needed, but knows what company would offer it and visits the retailer’s online store directly via the company’s URL.

Exploration via Search
Consumer is sure about the product needed, but doesn’t know where to buy it and uses a search engine, Google.com most likely, as a “comprehensive research tool.”

Rashtchy declared search a “new merchandising medium, the third medium.”

Goldman, Sachs & Co’s Fassler presented a more traditional Wall Street analysis of the ecommerce opportunity.

Fassler covers both traditional retailers and ecommerce firms and noted the tenuous, “love-hate” relationship on Wall Street between retail and ecommerce stocks. He believes the stock market is ultimately a “rational mechanism” that “in the long run rewards companies making the most money with the least risk.”

For Fassler, enhancing the franchises and economies of traditional retail businesses is the most interesting ecommerce opportunity. He cautioned, however, that expanding online entails significant risks and is far from a guaranteed win.

The key issues for traditional retailers are:

Does ecommerce lower the cost of doing business (infrastructure, real estate)?

Does ecommerce leverage existing assets (centralized distribution, customer service)?

Will ecommerce provide incremental revenue or simply channel shift?

Is management prioritizing economic profits over market position?

Even Fassler’s ecommerce forecasts were less sanguine than Rashtchy’s: “Ecommerce sales remain modest relative to broader retail sales and a low proportion of total consumption”:

Just over 3% of total retail sales,
Just over 1% of total consumption.

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