e-Retailing Is Crawling Back, Overall Spending Decrease Narrows

The numbers on U.S. e-commerce activity for the second quarter are in ' and they're good, indicating per se that the economy may be making a break from the recession.

The U.S. Census Bureau reported last month that estimated retail e-commerce sales for the second quarter were $32.4 billion, adjusted for seasonal variation, but not for price changes. That's an increase of 2.2% from the first quarter, when the Census Bureau reported that estimated retail e-commerce activity accounted for $31.7 billion of all retail activity ' an increase of 0.7% from the fourth quarter of last year.

Estimated e-commerce spending was down 4.4% from the second quarter of 2008, and overall estimated retail spending was down 10.8% from a year ago.

The margin of error for the second-quarter figures is '1.2%.

And while overall estimated retail spending was again down (minus 0.7%, the decrease was the smallest, percentage-wise, in four consecutive quarters), e-commerce retailing appeared to have held its own against all retail spending ' an indication that consumers sought deals and tried to save time and money by purchasing online. It also likely means that despite a heavy nationwide furlough of attorneys from corporations and law firms over the last 18 months, lawyers whose specialty is e-commerce, particularly in the retail sector, had work or could expect some, whether on contingency or during individual consultations.

Total second-quarter estimated retail spending came in at $906 billion, a decrease of 0.4% from the first quarter, and the fourth time in four quarters that estimated, adjusted, total retail spending was below $1 trillion, but the decrease in spending between quarters has slowed. Total adjusted estimated spending first hit $1 trillion in the first quarter of 2008, when the current decline began.

e-Commerce spending for the second quarter this year was estimated at 3.6% of all spending, which marked the third in four quarters that e-commerce spending as a percentage of all spending rose by a tenth of a percent.

The year-to-year, same-quarter estimated retail e-commerce activity appeared to be healing, too. The government said that the difference between the second quarter this year and last year was a decrease of 4.4%; the difference between the first quarter of this year and last year was a decrease of 5.4%.

In terms of improvement indications, estimated retail e-commerce sales for the second quarter was the strongest showing in adjusted figures since the fourth quarter of 2007, when estimates were up 6% from the third quarter.

Here is how the figures ' in this case, not adjusted for seasonal variations, trading-day differences and moving holidays 'came out:

• Total estimated retail spending: $924.6 billion, a 9.8% increase from the first quarter and a 10.6% decrease from 2008's second quarter;
• Total estimated e-commerce retail spending: $30.7 billion, which represents 3.3% of all spending, a 2.1% increase from the first quarter and a 4.5% decrease from the fourth quarter in 2008.

Although business lawyers represent many e-commerce business-to-consumer establishments, the components of that sector, retailing and selected services, account for only about 4% of U.S. e-commerce, according to the Census Bureau. Business-to-business e-commerce ' through manufacturing (the biggest chunk, at $1.9 billion), merchant wholesalers, manufacturing sales and branch offices (“MSBOs”) and non-MSBOs, which are categories of merchant wholesalers ' is the largest segment of the e-commerce market, accounting for about 93% of all U.S. e-commerce.

Defining e-Commerce

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.

Latest e-Commerce Total and Sector Report

In May, the Census Bureau released its E-commerce 2007 report. The Bureau's compilations of e-commerce activity typically lag a year after the reported year so that data can be analyzed, and a report, with accurate, meaningful statistics, can be prepared and released. 2007 is the latest of the surveys.

The report had good news for the general e-commerce sector, and for particular sectors, such as law, for 2007.

Overall, e-commerce grew faster than all economic activity in three of the four major sectors the Bureau's E-stats report covers, with only merchant wholesaling (Merchant Wholesalers) down slightly. The groups are:

1. Manufacturing;
2. Merchant wholesaling;
3. Retailing; and
4. Selected service industries.

The Census Bureau notes that the change in each sector from traditional to e-supported shipments, sales or revenues remained gradual.

Once again, the business-to-business (“B2B”) sector (legal services for purposes of e-Commerce Law & Strategy coverage fall into this category) ' which is manufacturing and merchant wholesaling in the Census Bureau's report ' led e-commerce, with 93% of all activity, including transactions besides flat-out sales, such as procurement and other costs.

Total e-commerce retail transactions in 2007 came to nearly $127 billion (3.2% of total retail sales), the Bureau says, up 3.2% from the $107 billion in 2006 (2.8% of total retail sales).

Also again, manufacturers and merchant wholesalers were the heaviest users of e-commerce, and manufacturers raised the pace at which they use e-means more quickly than did retailers or selected service businesses.

And from among merchant wholesalers comes indication that B2B e-commerce is rooted in, and mostly done by, EDI.

Sector Activity

The report that the Census Bureau released last May (for 2007) supersedes the previous report, highlights of which e-Commerce Law & Strategy has carried, sometimes with sector-specific analysis, for some time.

Data used in the report comes from four surveys of about 137,700 manufacturers, wholesalers, service businesses and retailers.

In 2007, the sector leader, manufacturing, racked up e-commerce totaling 35% (just about $1.69 billion) of all shipments. The Bureau noted that the total is the sixth consecutive “significant” annual increase.

Merchant wholesalers, an aegis under which the Census Bureau reports manufacturing sales branches and offices (“MSBOs”), ranked number two. This sector took 21.2% of e-commerce, or about $1.2 billion of all sales.

In the selected services category, a special amalgam of establishments and industry outlets, e-commerce increase substantially ' by 19.7%, and accounted for 1.8% of this sector's e-commerce activities, or about $124 billion.

The Retail Sector

As for retailers, e-commerce sales increased in that sector by 18.4% ' a slower increase than in previous years, and the least increase percentage-wise among the four activity-indicator categories ' and remained relatively low as a share of total retail sales for 2007, at 3.27%, or around $127 billion; in 2006, the e-commerce total was $107 billion, or 2.8% of all retail sales, which was up from about $84 billion, and 2.1% of all sales, for 2005.

Still, rapid expansion in e-tailing has been the norm. For instance, the Census Bureau notes that from 2002 to 2007, retail e-sales increased at
an average annual rate of 23.1%, compared with 5% for total retail sales.

In retail, more than 90% of e-sales came from non-store retailers, and motor vehicle and parts dealers. The tally there came to $93 billion for non-store retailers (73%), and $24 billion for motor vehicles and parts dealers (19% ' this percentage was the same as in 2006).

Where were the buys? Nearly all e-sales for non-store retail came from Internet shopping or the mail-order industry ' a group that includes catalog and mail-order houses, many of those selling through several channels; from pure-play retailers ' those selling solely on the Internet; and from the e-tail operations of traditional bricks-and-mortar retailers but that are operating as separate units and don't sell motor vehicles on the Net. The mail order and catalog sector brought in 45% of its total sales electronically, the Census Bureau says.

In the e-shopping and mail-order business, e-sales leading categories were:

• Clothing and Clothing Accessories (along with footwear): $14 billion, up $2 billion from 2006;
• Other merchandise: $13 billion, up $2 billion from 2006; and
• Computer hardware: $11 billion, up $2 billion from 2006.

As for percentage of online sales, the categories and numbers came out like this:

• Music and videos: 74%, up from 71%; and
• Electronics and appliances: 74%, up from 69%.

The Census Bureau adds that online sales accounted for 40% or more of sales in all but one of the 14 published merchandise lines.

For electronic shopping and mail-order houses segment, 45% of 2007 sales were “e.”

In selected service industries, e-commerce sales were $114 billion, up 14.9% from 2005 ' or 1.8% of all sales for this sector. In 2005, e-commerce sales here were $99 billion ' 1.7% of the whole take.

Manufacturing Data Rundown

e-Shipments across manufacturing “were pervasive,” the Bureau said, accounting for at least 17% of all manufacturing shipments in all 21 manufacturing-industry groups the Bureau tracks.

In 2007, as in prior years, e-shipments in the Beverage and Tobacco Products group accounted for most activity (56.5%), with Transportation Equipment a close second (55.6%).

But in what the Census Bureau calls “value terms,” manufacturing e-shipments were concentrated in six manufacturing-industry groups that accounted for 70% e-shipments in the sector in 2007. They are:

1. Transportation Equipment, with 22% of all e-shipments ($409 billion);
2. Chemical Products, with 13% ($247 billion);
3. Food Products, at 11% ($203 billion);
4. Petroleum and Coal Products, at 10% ($190 billion);
5. Computer and Electronic Products, at 8% ($142 billion); and
6. Machinery Products, at 6% ($109 billion).

Those industries racked up 64% of total manufacturing shipments.

From 2006 to 2007, the government notes, e-shipments grew substantially in five manufacturing-industry groups:

1. Paper (50%);
2. Leather and Allied Products (46%);
3. Primary Metal Products (34%);
4. Printing and Related Support Activities (34%); and
5. Food Products (32%).

The Census Bureau explains: The 2007 data came from the Economic Census ' Manufacturing. The manufacturing universe is composed of about 320,000 plants. In the census, data are collected from establishment firms above a specified payroll cutoff that can vary by industry. For most very small firms, data from existing administrative records were used instead. Establishments representing approximately 5% of the total 2007 value of shipments did not have an opportunity to report e-commerce shipments.

Data on the Other Sectors

Data for the Census Bureau report come from three primary sources.

The first is the Annual Wholesale Trade Survey (“AWTS”), which measures economic activity of merchant wholesale firms with paid employees including manufacturers' sales branches and offices. Merchant wholesale firms are those that take title to the goods they sell.

The second data source is the Service Annual Survey (“SAS”), which measures activity of employer firms classified in nine service-related sectors:

1. Transportation and warehousing;
2. Information;
3. Finance and insurance;
4. Real estate, and rental and leasing;
5. Professional, scientific, and technical services;
6. Administrative, and support and waste management and remediation services;
7. Health care and social assistance;
8. 8. Arts, entertainment and recreation; and
9. 9. Other services.

About 58,000 of 3 million companies with paid employees report information.

The third source is the Annual Retail Trade Survey (“ARTS”), which measures economic activity of all retailers with and without paid employees, from about 26,000 firms with paid employees; about 21,000 of the firms are classified as retail trade and 5,000 are classified as accommodation and food services. Sales for firms without paid employees are estimated using administrative records. The retail-trade universe contains about 2.6 million firms. The accommodation and food services universe contains about 700,000 firms.

The Census Bureau says on its Web site: For these three surveys, stratified random samples of firms were drawn from a sampling frame that was constructed using information from the 2002 Economic Census and updated with information from the Census Bureau's Business Register. The samples were updated to represent employer firms in business during 2007.

Merchant Wholesalers

U.S. merchant wholesalers, MSBOs among them, tallied total e-commerce sales of $1.226 billion, up from the revised $1.2 billion in 2006 ' representing an annual increase of 2.7%.

The Census Bureau explains that, unlike other wholesalers (i.e., brokers, commission agents and electronic market places and exchanges), merchant wholesalers take title to the goods they sell.

In 2007, merchant wholesale e-sales, not counting MSBOs, accounted for 16.6% ($689 billion) of the combined sector's total sales ($4.2 trillion).

The Census Bureau says that for merchant wholesalers, excluding MSBOs, and data for MSBOs, were counted separately.

As in manufacturing, merchant wholesalers' reliance on e-commerce was widespread in 2007. Ten of the 15 merchant wholesale industry groups (excluding MSBOs), for which complete data for 2007 were publishable, conducted more than 6% of their business electronically.

In value terms, in those 15 industries, three industry groups accounted for 35% of all e-sales ' Motor Vehicles and Automotive Equipment, Professional and Commercial Equipment and Supplies, and Grocery and Related Products.

In the 2002 Economic Census, merchant wholesalers (including MSBOs) accounted for about 90% of total sales in the wholesale trade sector. Wholesale agents, brokers, and electronic markets made up the remaining 10%.

Is B-to-B e-commerce still conducted chiefly using EDI ' via value-added networks (“VAN”) and over the Internet? That's a question that the AWTS asked for the 2007 survey. The answer: EDI had a 73.5% share of merchant wholesalers' (excluding MSBOs) e-commerce activity.

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