e-Commerce Slowing, But Continues to Grow and Outpace Bricks-and-Mortar Stores

U.S. Census Bureau estimates for first-quarter e-commerce spending reflect a slowing economy, but e-commerce continued rising as a percentage of all retail spending, government figures released last month show.

And even though the percentage of e-commerce activity as a total of all estimated retail commerce for the first quarter of this year again rose faster than general retail spending, preliminary figures were even with a preceding quarter, something that hasn't happened since 2001.

The Bureau's numbers came out this way: Estimated first-quarter e-commerce retail sales were $33.8 billion ' up 0.8% from the fourth quarter of last year.

That figure is 3.3% of total estimated first-quarter retail sales of $1.2 trillion, the Bureau notes ' the same increase from the third quarter to the fourth of last year. e-Commerce as a percentage of all estimated retail sales has increased a tenth of a percent every quarter since the fourth quarter of 2002.

The Census Bureau notes that the estimate was adjusted for seasonal variation, but not for price changes.

The government, as usual, didn't comment on whether the slight increases in e-commerce reflected concern about extended low interest rates, a slowing housing market, increases in mortgage foreclosures, or some economists' fears of a possible impending or actual recession. But even without government comment, it seems that general and industry-specific ' presumably in the legal sector, too ' alarm over recession and job losses is showing up in the estimates.

For instance, the estimated first-quarter e-commerce increase from the same time last year came to 13.6% (+1.2%) ' the lowest year-to-year increase by quarter since the third quarter of 2001, when the up-tick from the same period in 2000 was 12.7%. That figure, in the mix of estimated spending in the quarter that included the 9/11 terror attacks, remains the lowest quarterly same-time-as-last-year rise since the Bureau began calculating that statistic in 2000.

First-quarter estimates of total retail sales come to a 0.1% increase over total fourth-quarter sales and a 2.8% increase over first-quarter 2007 total sales.

Total adjusted retail estimated first-quarter sales were $965.5 billion. With adjustments for price changes, total e-commerce sales estimates were down 16.9% from the fourth quarter of 2007.

The Census Bureau classifies e-commerce sales as any involving 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.

Information from the Census Bureau's Web site, with some interpretation and with background on the Bureau's survey methodology and history, follows.

Not adjusted for seasonal variations, trading-day differences or price changes, e-commerce retail transactions for the first quarter of 2008 tallied out at $32.4 billion. That's down 16.9% (+1%) from the fourth quarter of last year and a 13.4% (+1.2%) increase from the first quarter of 2007. The dip in estimated e-commerce spending is consistent with figures that are adjusted for seasonal variation and holiday and trading-day differences, but the decrease last quarter by that measure is the largest since the Bureau began tracking e-commerce spending in 1999.

Not-adjusted e-commerce estimated first-quarter sales accounted for 3.4% of all sales.

The Census Bureau is scheduled to release second-quarter figures on Aug. 15.

What It Means, and What's Coming

The government's figures, drawn from a sample of more than 12,000 retailers, come to a total of $127.3 billion in e-commerce for 2007. The Census Bureau doesn't include in its statistics data from such enterprises as eBay, which e-commerce oriented publications, such as this newsletter, consider e-commerce activities.

Census data also include such ventures as service stations and food outlets with all other retailers to calculate the percentage of e-commerce in the whole of estimated U.S. retail business. With such businesses that use little or no e-data purchasing and sales technology included in the activity-estimate mix, the percentage of sales that e-commerce represents of total retail activity is probably double the government's guess, e-commerce experts say.

Forrester Research of Cambridge, MA, using government, consultancy and trade-association estimates, put total U.S. online retail sales at
$175 billion for last year and predicts an increase through 2012, when, Forrester estimates, online sales will come to $335 billion. Forrester notes in the January report that 2007 online spending is up 21% over 2006. Yearly until 2012, Forrester expects, e-commerce will add $30 billion to its till.

A team of Forrester analysts, led by Sucharita Mulpuru, notes in the recent report that people who buy products online are more affluent than the average citizen, and so are not as much affected by changes in the general economy. The average 'most active' online consumers earn about $100,000 a year, the report says. These shoppers account for half the online-shopping pool and spend about two-thirds of all online-transaction money.

Online market penetration was 6% last year, Forrester estimates ' again a low figure, considering the enormous pool of various businesses used to calculate U.S. consumer spending.

'When we exclude large retail categories that are poorly penetrated online from that calculation ' particularly autos and food (which are 50% of total U.S. retail sales) ' online penetration of retail sales is more than 13%, or about $1 out of every $7 spent by consumers,' Forrester says.

Despite the rosy numbers, the Forrester team comments that e-commerce growth, while continuing, is slowing ' most likely a natural outcome of the industry maturing. And even though online-sales growth is outrunning in-store sales growth, most shoppers still prefer shopping in stores, with Internet shopping in second place, Forrester notes.

Still, the healthy pace of e-commerce is good for lawyers, some e-commerce counsel note, because the more sales, the more activity in which e-commerce firms are engaged and, theoretically, the more legal guidance they'll need.

Stats from Forrester

Parsing numbers, Mulpuru's report shows that fashion is fashionable on the Internet. Of 21 online-purchasing categories Forrester lists in its report, 'Apparel, accessories, and footwear' leads the list in terms of dollars spent ' an estimated $22.7 billion in 2007, which accounted for about 18% of all sales in that sector.

The Forrester report indicates that 88% of U.S. consumers have bought something online, but ' and an area for e-commerce counsel to focus on in advising clients ' 44% of people who don't like to shop online or who haven't ever done so cite discomfort over providing financial data on the Internet as the major reason for not using e-commerce sites. Forty percent of people want to be able to see what they buy before purchasing it, 20% check out products online and then buy them in a store, and 18% shy away from Internet buying because they've heard about other people's bad experiences.

And another possible wake-up call for e-commerce entrepreneurs and their advisers about Web site navigability and online prominence: 44% of online shoppers know what they want when they get online to find it, and the same percentage of shoppers visit only one retailer's Web site before buying online.

As for other barriers to online buying, nearly half of Forrester survey respondents say they bought in stores because they don't want to wait for the product, and a quarter say they don't want to pay shipping costs.

By far, the market segment with the largest percentage of online sales ' perhaps not surprising ' is 'Computer hardware, software, and peripherals,' which totals 55% of all such sales. Dollar-wise, that category came in at $20.7 billion last year, second to fashion.

The next biggest category, in dollars, is 'Autos and auto parts,' with $16.8 billion in online sales last year, but comprising only 4% of all car and car-accessories sales ' indicating, along with 'Food, beverages, and groceries' at $6.2 billion and a 4% market share, people's continuing preference for shopping in stores.

Also not surprising are the large online percentages of sales for 'Consumer electronics,' 'Event tickets,' 'Gift cards and gift certificates,' 'Music and videos,' 'Toys and video games,' 'Baby products' and 'Books' ' all items that people with higher amounts of disposable income, and computer and Internet access and savvy, are more likely to buy online. Last year, Forrester says, online sales of those commodities, and some others, looked like this:

• Event tickets: 43% of purchases ($5.7 billion);
• Music and videos: 35% ($8.2 billion);
• Gift cards and gift certificates: 34% ($7.3 billion);
• Toys and video games: 32% ($6.7 billion);
• Baby products: 30% ($1.8 billion);
• Consumer electronics: 29% ($13.9 billion);
• Books: 28% ($7.6 billion);
• Flowers and cards: 22% ($3.3 billion); and
• Jewelry: 20% ($6.4 billion).

Census Report On e-Commerce

A year ago, the Census Bureau released a report profiling U.S. e-commerce for 2005, with some highlights and notes on previous years (2005 E-commerce Multi-sector Report ' see, www.census.gov/eos/www/2005/2005reportfinal.pdf). 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%).

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, 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 in 2005, compared with 36% in 2004.

The table of quarterly retail e-commerce statistics is available at www.census.gov/mrts/www/data/html/08Q1.html.

U.S. Census Bureau estimates for first-quarter e-commerce spending reflect a slowing economy, but e-commerce continued rising as a percentage of all retail spending, government figures released last month show.

And even though the percentage of e-commerce activity as a total of all estimated retail commerce for the first quarter of this year again rose faster than general retail spending, preliminary figures were even with a preceding quarter, something that hasn't happened since 2001.

The Bureau's numbers came out this way: Estimated first-quarter e-commerce retail sales were $33.8 billion ' up 0.8% from the fourth quarter of last year.

That figure is 3.3% of total estimated first-quarter retail sales of $1.2 trillion, the Bureau notes ' the same increase from the third quarter to the fourth of last year. e-Commerce as a percentage of all estimated retail sales has increased a tenth of a percent every quarter since the fourth quarter of 2002.

The Census Bureau notes that the estimate was adjusted for seasonal variation, but not for price changes.

The government, as usual, didn't comment on whether the slight increases in e-commerce reflected concern about extended low interest rates, a slowing housing market, increases in mortgage foreclosures, or some economists' fears of a possible impending or actual recession. But even without government comment, it seems that general and industry-specific ' presumably in the legal sector, too ' alarm over recession and job losses is showing up in the estimates.

For instance, the estimated first-quarter e-commerce increase from the same time last year came to 13.6% (+1.2%) ' the lowest year-to-year increase by quarter since the third quarter of 2001, when the up-tick from the same period in 2000 was 12.7%. That figure, in the mix of estimated spending in the quarter that included the 9/11 terror attacks, remains the lowest quarterly same-time-as-last-year rise since the Bureau began calculating that statistic in 2000.

First-quarter estimates of total retail sales come to a 0.1% increase over total fourth-quarter sales and a 2.8% increase over first-quarter 2007 total sales.

Total adjusted retail estimated first-quarter sales were $965.5 billion. With adjustments for price changes, total e-commerce sales estimates were down 16.9% from the fourth quarter of 2007.

The Census Bureau classifies e-commerce sales as any involving 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.

Information from the Census Bureau's Web site, with some interpretation and with background on the Bureau's survey methodology and history, follows.

Not adjusted for seasonal variations, trading-day differences or price changes, e-commerce retail transactions for the first quarter of 2008 tallied out at $32.4 billion. That's down 16.9% (+1%) from the fourth quarter of last year and a 13.4% (+1.2%) increase from the first quarter of 2007. The dip in estimated e-commerce spending is consistent with figures that are adjusted for seasonal variation and holiday and trading-day differences, but the decrease last quarter by that measure is the largest since the Bureau began tracking e-commerce spending in 1999.

Not-adjusted e-commerce estimated first-quarter sales accounted for 3.4% of all sales.

The Census Bureau is scheduled to release second-quarter figures on Aug. 15.

What It Means, and What's Coming

The government's figures, drawn from a sample of more than 12,000 retailers, come to a total of $127.3 billion in e-commerce for 2007. The Census Bureau doesn't include in its statistics data from such enterprises as eBay, which e-commerce oriented publications, such as this newsletter, consider e-commerce activities.

Census data also include such ventures as service stations and food outlets with all other retailers to calculate the percentage of e-commerce in the whole of estimated U.S. retail business. With such businesses that use little or no e-data purchasing and sales technology included in the activity-estimate mix, the percentage of sales that e-commerce represents of total retail activity is probably double the government's guess, e-commerce experts say.

Forrester Research of Cambridge, MA, using government, consultancy and trade-association estimates, put total U.S. online retail sales at
$175 billion for last year and predicts an increase through 2012, when, Forrester estimates, online sales will come to $335 billion. Forrester notes in the January report that 2007 online spending is up 21% over 2006. Yearly until 2012, Forrester expects, e-commerce will add $30 billion to its till.

A team of Forrester analysts, led by Sucharita Mulpuru, notes in the recent report that people who buy products online are more affluent than the average citizen, and so are not as much affected by changes in the general economy. The average 'most active' online consumers earn about $100,000 a year, the report says. These shoppers account for half the online-shopping pool and spend about two-thirds of all online-transaction money.

Online market penetration was 6% last year, Forrester estimates ' again a low figure, considering the enormous pool of various businesses used to calculate U.S. consumer spending.

'When we exclude large retail categories that are poorly penetrated online from that calculation ' particularly autos and food (which are 50% of total U.S. retail sales) ' online penetration of retail sales is more than 13%, or about $1 out of every $7 spent by consumers,' Forrester says.

Despite the rosy numbers, the Forrester team comments that e-commerce growth, while continuing, is slowing ' most likely a natural outcome of the industry maturing. And even though online-sales growth is outrunning in-store sales growth, most shoppers still prefer shopping in stores, with Internet shopping in second place, Forrester notes.

Still, the healthy pace of e-commerce is good for lawyers, some e-commerce counsel note, because the more sales, the more activity in which e-commerce firms are engaged and, theoretically, the more legal guidance they'll need.

Stats from Forrester

Parsing numbers, Mulpuru's report shows that fashion is fashionable on the Internet. Of 21 online-purchasing categories Forrester lists in its report, 'Apparel, accessories, and footwear' leads the list in terms of dollars spent ' an estimated $22.7 billion in 2007, which accounted for about 18% of all sales in that sector.

The Forrester report indicates that 88% of U.S. consumers have bought something online, but ' and an area for e-commerce counsel to focus on in advising clients ' 44% of people who don't like to shop online or who haven't ever done so cite discomfort over providing financial data on the Internet as the major reason for not using e-commerce sites. Forty percent of people want to be able to see what they buy before purchasing it, 20% check out products online and then buy them in a store, and 18% shy away from Internet buying because they've heard about other people's bad experiences.

And another possible wake-up call for e-commerce entrepreneurs and their advisers about Web site navigability and online prominence: 44% of online shoppers know what they want when they get online to find it, and the same percentage of shoppers visit only one retailer's Web site before buying online.

As for other barriers to online buying, nearly half of Forrester survey respondents say they bought in stores because they don't want to wait for the product, and a quarter say they don't want to pay shipping costs.

By far, the market segment with the largest percentage of online sales ' perhaps not surprising ' is 'Computer hardware, software, and peripherals,' which totals 55% of all such sales. Dollar-wise, that category came in at $20.7 billion last year, second to fashion.

The next biggest category, in dollars, is 'Autos and auto parts,' with $16.8 billion in online sales last year, but comprising only 4% of all car and car-accessories sales ' indicating, along with 'Food, beverages, and groceries' at $6.2 billion and a 4% market share, people's continuing preference for shopping in stores.

Also not surprising are the large online percentages of sales for 'Consumer electronics,' 'Event tickets,' 'Gift cards and gift certificates,' 'Music and videos,' 'Toys and video games,' 'Baby products' and 'Books' ' all items that people with higher amounts of disposable income, and computer and Internet access and savvy, are more likely to buy online. Last year, Forrester says, online sales of those commodities, and some others, looked like this:

• Event tickets: 43% of purchases ($5.7 billion);
• Music and videos: 35% ($8.2 billion);
• Gift cards and gift certificates: 34% ($7.3 billion);
• Toys and video games: 32% ($6.7 billion);
• Baby products: 30% ($1.8 billion);
• Consumer electronics: 29% ($13.9 billion);
• Books: 28% ($7.6 billion);
• Flowers and cards: 22% ($3.3 billion); and
• Jewelry: 20% ($6.4 billion).

Census Report On e-Commerce

A year ago, the Census Bureau released a report profiling U.S. e-commerce for 2005, with some highlights and notes on previous years (2005 E-commerce Multi-sector Report ' see, www.census.gov/eos/www/2005/2005reportfinal.pdf). 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%).

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, 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 in 2005, compared with 36% in 2004.

The table of quarterly retail e-commerce statistics is available at www.census.gov/mrts/www/data/html/08Q1.html.