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e-Commerce Continues to Grow

By Michael Lear-Olimpi
June 26, 2007

The economy racked up another apparent e-commerce activity record in the first quarter, the U.S. Census Bureau reports.

The government says that e-commerce sales, which include Internet and other electronically conducted transactions, rang up at a little more than $31.5 billion from January through March, plus or minus a 1.3% margin of error.

Figures are estimates but are adjusted for seasonal variation, and for holiday and trading-day differences, but not for price changes.

Private-sector reports, including an annual survey by Boston-based Forrester Research, suggest that retail sales, led last year by clothes-buying online, have helped boost e-commerce transactions among the public over the last eight years, although government and other analysts say that the business-to-business sector still accounts for nearly all significant e-commerce activity.

According to the Census Bureau, e-commerce sales involve goods and services for which a buyer places an order, or for which price and terms of sale are negotiated, over the Internet, an extranet, an electronic data interchange ('EDI') network (this is the leading method), e-mail or other online system. Payment needn't be made online for the transaction to count as e-commerce.

The Adjusted First Quarter Figures

The adjusted first-quarter figures showed that e-commerce accounted for 3.2% of the adjusted total estimated volume of commerce, which cashed out at $999.5 billion.

e-Commerce spending was up 3% from the fourth quarter of 2006, when total U.S. commerce was worth an adjusted $983.1 billion, with e-commerce claiming a 3.1% share of that, at $30.6 billion of all estimated spending.

Overall first-quarter spending this year was up 3.2% from the first quarter of last year, but the percentage of change in e-commerce spending from the previous first quarter was 18.4% ' the lowest first-quarter-to-first-quarter increase since the Census Bureau began tracking that particular percentage, in 2001. The Census Bureau didn't comment on the change.

The Unadjusted First Quarter Figures

Unadjusted first-quarter figures look this way:

e-Commerce: $30.6 billion;
Total commerce: $935.3 billion;
e-Commerce as a percentage of total sales: 3.3%;
All sales: down 8.9% from the end of last year;
Overall e-commerce sales: down 13.4% from the fourth quarter of 2006;
Percentage of change from first quarter 2006: 4% for all commerce; and
Percentage of change from first quarter 2006: 18.4% for e-commerce.

Total estimated adjusted e-commerce sales for all of 2006 came to $114.6 billion: 2.9% of all 2006 sales.

Bureau Report on e-Commerce in 2005

In late May, the Census Bureau released a report profiling U.S. e-commerce for 2005, with some highlights and notes on previous years. Data for the report were collected in four surveys from about 137,600 manufacturing, wholesale, service and retail businesses.

The report states that in 2005, as in previous years, business-to-business companies conducted the overwhelming majority of e-commerce ' about 92% ' and that most of that activity was done over proprietary EDI systems, according to data from merchant wholesalers.

Another continuing trend is that manufacturers ' the largest share of e-commerce ' and merchant wholesalers do the most e-commerce. Manufacturing shipments, for instance, accounted for about $1.3 billion in 2005 ' 26.7% of the total ' which was up from $996 billion in 2004, representing an annual increase of 27.1%. And in 2004, manufacturing e-shipments were up 23.1% from 2003, the Census Bureau reports.

The government notes that from 2000 to 2005, manufacturing e-shipments increased at an average annual rate of 11.4%, compared with 2.5% for total shipments. Across the manufacturing spectrum, e-shipments were pervasive, with that method of deliverables making up at least 10% of all shipments in all 21 manufacturing-industry groups. In 2005, as in prior years, e-shipments as a share of total shipments were largest in the transportation-equipment group (53.9%), and in the beverage and tobacco group (49.1%).

But the figures merit some analysis.

The government notes that in terms of value, e-shipments in the manufacturing sector were concentrated, with just six industry groups accounting for more than 70% in 2005. Here's the breakdown:

Transportation equipment, 29% of all e-shipments ($370 billion);
Chemicals, 13% ($158 billion);
Petroleum and coal products, 10% ($120 billion);
Food products, 8% ($95 billion);
Computer and electronic products, 7% ($86 billion); and
Machinery products, 6% ($72 billion).

Those industries accounted for 63% of all manufacturing shipments, the Census Bureau notes. As a comparison, the Bureaus explains that from 2004 to 2005, the volume of e-shipments grew 'substantially' in seven manufacturing industry groups. That tally follows:

Printing and related products (90%);
Petroleum and coal products (55%);
Chemicals (54%);
Paper products (52%);
Textile mills (52%);
Wood products (52%); and
Food products (48%).

Three groups among these industries ' petroleum and coal products, chemical manufacturing, and food products ' were among the largest e-shippers. Two other large e-shipper groups ' machinery products, and computer and electronic products ' increased e-shipments at what the Census Bureau calls 'a vigorous pace': 37% and 12%, respectively.

Manufacturers ' along with merchant wholesalers ' increase their use of e-commerce annually at a faster pace than do retailers and the Bureau's selected service businesses, a category of entities that the Bureau created for its e-Stats reports. This has been the case since the government began tracking e-commerce as a sector of the national economy in 1999.

Merchant Wholesalers

In second place for the amount of e-commerce conducted among the industry groups were merchant wholesalers, a category that includes what the government describes as manufacturing sales branches and offices ('MSBOs'). In this group, e-commerce rang up 18.3% of all sales (all sales came to $945 billion).

e-Commerce sales among merchant wholesalers also grew more slowly than total sales. The 2005 figures compared to total estimated e-commerce sales of $896 million in the retail sector in 2004, an annual increase rate of 5.5%.

Merchant wholesalers also increase their use of e-commerce annually at a faster pace than do retailers and selected service businesses. This has also been the case since the government began tracking e-commerce as a separate sector of the national economy in 1999.

As in manufacturing, merchant wholesalers depended widely on e-commerce in 2005. Also as in the manufacturing sector, electronic business was concentrated among merchant wholesalers, the government notes. The Census Bureau says that 11 of 16 merchant-wholesale industry groups (not counting MSBOs) from which complete data for 2005 was available to be published conducted more than 5% of their business via electronic means. And, again, as in manufacturing, that activity was concentrated, with four groups in the sector ' drugs and druggists' sundries, motor vehicles and automotive equipment, professional equipment, and grocery product ' taking 69% of all e-commerce in the 16 survey groups.

Merchant wholesalers, unlike other types of wholesalers, take title to what they sell.

In the Retail Sector

In retail, e-commerce sales rose 22.2%, but as a total share of retail sales, e-commerce transactions 'remained modest,' the government says ' 2.5% ($93 billion), up from 2.2% ($76 billion) in 2004.

Among selected service industries, e-commerce sales were up by 14.9%, with electronic commerce accounting for 1.6% ($96 billion) of total revenues, a figure up from 1.5% ($83 billion) in 2004.

Quick growth in the e-retail sector has been the norm since the Bureau began tracking e-commerce. Retail e-sales, for instance, increased at an average annual rate of 27.3% from 2004 to 2005, compared with 4.3% for total retail sales. But in 2005, e-sales made up just 2.5% of all retail sales, which was up from that 2.2% ($76 billion) in 2004.

To put the numbers in perspective, the Census Bureau points out that more than 90% of retail e-sales were concentrated in two industry groups ' non-store retailers, and motor vehicles and parts dealers; these accounted for a respective 73% ($68 billion) and 18% ($17 billion) of all e-sales in the sector.

The electronic shopping and mail-order houses industry group accounted for almost all e-sales. This group includes:

Catalog and mail-order operations, many selling through multiple channels;
'Pure plays' (i.e., retail businesses selling only over the Internet); and
Traditional brick-and-mortar retailers' e-commerce divisions (i.e., 'bricks-and-clicks'), in which the unit operates separately and doesn't sell motor vehicles online.

The head merchandise category for e-sales in 2005 in retail was 'other merchandise,' with $10 billion Next was computer hardware, with $9 billion in e-sales, and clothing and clothing accessories (this includes footwear), with $8 billion in e-sales.

Electronics and appliances was the category with the highest percentage of product sold online ' with 67% ' but online sales were 'a third or more of total sales in 13 of the 14 reported merchandise lines,' the Census Bureau notes. Forty-one percent of 2005 sales were electronic, in the electronic-shopping and mail-order houses industry, compared with 36% in 2004.

Among Selected Service Industries

For the selected-service industries, the e-take was $96 billion in 2005, which the Census Bureau says was an increase of 14.9% above 2004's revised e-revenue estimates of $83 billion. In 2005, electronically collected revenues represented 1.6% of total selected-service industries revenues; it was 1.5% in 2004.

Two groups accounted for 23% ($22 billion) of e-revenues ' publishing, and travel arrangement and reservation services. The biggest e-revenue share of total revenue was in the travel arrangements and reservation services group (33%), and the Internet service providers and Web search portals industry group (7%).

The Bureau notes that the information is not an official NAICS grouping, but a sum of selected groups, some of which are not complete.

A Look At the Quarterly Report Data

The Census Bureau notes that e-commerce data is collected from five Bureau surveys that use different measures of economic activity, like manufacturing shipments, wholesale and retail sales trade, and service-industry revenues.

The Bureau also points out on its Web site (www.census.gov) that because of the survey method ' which changes from time to time, and varies according to when data is received ' economic activity as reported in Census Bureau reports can vary.

The government's e-Stats program, which is devoted exclusively to reporting on electronic commerce in the United States, doesn't cover the entire national economy. It focuses on industries in the North American Industry Classification System ('NAICS') that compose about 77% of the monetary and trade activity that the Bureau's 2002 economic census ' the most recent such survey ' examined and measured.

Not covered are:

Agriculture;
Mining;
Utilities;
Construction;
Agents;
Brokers;
Electronic markets in wholesale trade; and
About one-third of U.S. service-related industries.

A New Sample

Earlier this year, the Census Bureau noted that e-commerce and total retail-sales estimates came from a new sample of its Monthly Retail Trade Survey, from which it extracts and compiles quarterly figures.

The sample, established in 1951 and from which monthly and quarterly reports have been produced since then, changes about every five years to account for fluctuations in the economy, and among the survey sample. The sample changed last year.

The sample consists of 12,500 retail businesses that have paid employees. The Bureau adds to that data estimates for non-employer businesses, new employers, and employers missed ' all data from the Bureau's benchmarking for its Annual Retail Trade Survey.

Retail firms are selected for the sample from the Business Register. That resource has all federal Employer Identification Numbers ('EINs') and the location of listed enterprises. Information on sales and inventories is collected on one form, the Census Bureau notes.

The overall working sample is refreshed by quarter to account for what the Census Bureau describes as 'employer business 'births' and 'deaths'; adding new employer
businesses identified in the Business and Professional Classification Survey and dropping firms and EINs when it is determined that they are no longer active.'

It takes about 9 months for new businesses to show up in the sample.

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Census Bureau e-Commerce Q&A

Below is an excerpt of a Census Bureau frequently-asked-questions Internet page concerning e-commerce and e-commerce statistics that the Bureau uses in its reports.

Question: How many firms are surveyed to estimate e-commerce sales?

Answer: e-Commerce sales are estimated based on the monthly activity of approximately 11,000 retail firms. All firms that receive the retail survey report form each month are asked to provide their e-commerce sales.

Question: Are sales at electronic auctions included in the e-commerce estimate?

Answer: Electronic auctions directed at individual consumers are classified as retail trade. However, commissions and fees, not sales, are included in the e-commerce estimate. This is similar to the way the Census Bureau treats sales at traditional auction houses.

Question: Are sales of adult material included in the retail e-commerce estimates?

Answer: Sales from businesses primarily selling goods of any kind are included while businesses primarily providing services such as publishing and broadcasting are excluded.

Question: Are you planning to release an advance estimate of retail e-commerce sales?

Answer: No. The sample used to provide an advance estimate of change in total monthly retail sales is not of adequate size to measure change in retail e-commerce sales.

Question: Are retailers willing and able to provide their e-commerce sales values?

Answer: Yes. The retailers in the survey are very cooperative and in most cases were able to provide the dollar volume of their e-commerce sales.

Question: Are you estimating total retail sales differently as a result of measuring e-commerce sales?

Answer: No. The Monthly Retail Trade Survey covers all sales of establishments primarily engaged in retail activities, including traditional retailers selling via the Internet and companies selling goods exclusively on-line. The survey excludes companies conducting non-retail operations such as travel, ticketing, and financial services.

Question: Are new retail businesses selling via the Internet added to the monthly survey?

Answer: Yes. We update our sample regularly to account for new businesses, including retailers selling exclusively via the Internet. New businesses are identified when they notify the federal government of their intention to hire employees. The Bureau draws a sample of these new businesses and adds them to the survey each quarter.

Michael Lear-Olimpi is Editor-in-Chief of e-Commerce Law & Strategy, and its sibling publication, e-Discovery Law & Strategy. Reach him at [email protected]. The economy racked up another apparent e-commerce activity record in the first quarter, the U.S. Census Bureau reports.