Survey: New focus boosts online retail profits
Online retailers slowly moved closer to profitability during the first half of the year, according to a new survey to be released today by Shop.org and Boston Consulting Group.
A shift in spending, from brand awareness to lure new customers to generating repeat business, seemed to be paying off, said officials with the two research groups.
"Online retailers have improved performance on the key metrics that have the largest impact on the bottom line," said JamesVogtle, director of e-commerce research for Boston Consulting.
Customer acquisition costs continued to decline, slightly more visitors placed orders and repeat buyers accounted for a growing amount of revenues. E-tailers were disciplined into seeking revenues from their customers after investors decided earlier this year that generosity wasn't paying, said the analysts. Watching the collapse of well-funded dot coms persuaded the markets to tighten up across the board, and several more online retailers have retrenched or folded.
Such higher budget-consciousness helped lower the costs of acquiring new customers, said officials conducting the survey. From a peak of $71 during the last quarter of 1999, these costs fell to $45 in the first quarter of 2000, and then to $40 in the second quarter. But it remains above the $35 level set in the third quarter of 1999.
Marketing budgets now devote more dollars to tapping customer loyalty than spreading brand awareness. Almost half of e-tailers' revenues came from repeat buyers in the second quarter of 2000, up "significantly" from 1999, said the survey.
The logic behind that is simple: the average retailer needs a customer to make three purchases before the retailer breaks even on the cost of obtaining the customer, said Kate Delhagen, chairwoman of Shop.org's Committee on Internet Shopping Research.
"Many online retailers are focusing their efforts on increasing the frequency of purchases from existing customers, in order to reduce acquisition spending and achieve profitability more quickly at an operational level."
Retailers have done other things as well to achieve profits directly. Of the 66 North American retailers surveyed, 86 percent said they had specifically addressed the issue of profitability. Another 40 percent had renegotiated or canceled portal deals. About 29 percent deferred site upgrades.
Only 11 percent said they had cut staff to improve profitability. But lack of information still prevents e-tailers from becoming as profitable as they could be.
Another new study, released yesterday by Jupiter Communications, said that 76 percent of bricks-and-clicks retailers are no able to track their own customers who move from physical stores to catalogs to Web sites. That keeps them from taking full advantage of how multi-channel customers spend 30 percent more than those who buy through only one channel. Such blindness may even cost them market share to more watchful retailers, who do track customers across several channels, said Jupiter analyst Michele Rosenshein.
The report suggests that retailers adding e-commerce could using it to leverage sales in physical stores and vice versa.