As e-commerce continues to impact consumer shopping, analysts expect some sales channels to suffer more than others when it comes to the CPG category. Specifically, between now and 2015, Nielsen analysts are looking for supercenters and e-commerce sites to increase their dollar share of total channel sales by 5 points.  These changes also suggest that marketing budgets for CPG are likely to change.

Nielsen studies show that in 2001, the combined sales of club, e-commerce and mass supercenter channels comprised about 11% of CPG dollar sales. By 2015, that amount will increase to 29%.  These increases mean other sales channels must lose market share. According to Nielsen, channels that have lost or just maintained channel share include:

• Mass merchants
• Convenience stores
• Home improvement vendors
• Drug stores
• Supermarkets

The Nielsen report also indicates that specific formats which are still in a growth stage of their life cycles – pet stores and consumer electronics – will increase market share at least through 2015. Specialty retailers that will not fare as well include toy stores, book stores and liquor stores.

Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company predicts that retailers will consolidate as they compete on a national level and seek opportunities linked to a larger scale. At the same time,  CPG professionals will work with retailers to  develop online and social marketing and brand/banner-specific apps to increase consumer loyalty, build sales and create a competitive advantage.  Hale also warns CPG professionals that traditional media will deliver shrinking returns as we approach 2015.

[Source: Nielsen Unveils Retail 2015 Forecast. Nielsen.com. 15 Jun. 2010. Web. 3 Aug. 2010]

As e-commerce sales continue to grow, more retailers are seeking ways to further boost their online sales.   E-commerce has been around for 15 years, but chain retailers are only now beginning to invest in their online businesses, said Mark Brohan, director of research for Internet Retailer magazine.  While online sales aren’t expected to overtake or replace brick and mortar stores, the e-commerce channel is the fastest growing part of the business for many traditional retailers, Brohan said.

In-store kiosks

Traditional retailers are finding that they can provide a wider range of choices online, without the need to take up space in their stores.  To that end, some retailers are testing in-store kiosks.  The kiosks are a place where brick-and-mortar retailing meets the Internet. It is a new initiative for retailers such as Kohl’s, aimed at boosting sales in whatever channel works for the customer: in the store or online.

“They can test market products on their Web sites without making the investment of putting them in the stores,” said Dick Seesel, who operates Retailing in Focus, a Mequon consulting firm.

Some retailers who are selling lines of merchandise online that they don’t carry in their stores don’t ever handle the merchandise, which is shipped directly from the supplier. In those situations, the retailer has the benefit of selling things without making an investment in the inventory, Seesel said.  In addition, some in-store kiosk programs allow customers to search for extended sizes or out-of-stock items and order online.

Playing catch-up

“Department stores were a little slower getting online,” said Jeffrey Grau, senior analyst with eMarketer, a New York research firm. “Now they’re making up for it.”

Retailers are actively promoting their websites with in-store reminders, such as the public address system, as well as with social networking efforts on sites like Twitter and Facebook.  Department store retailer Bon-Ton has about 15% of the contents of its stores available online, said Jimmy Mansker, senior vice president of planning and e-commerce.  The online option is particularly appealing to customers in rural areas who typically travel long distances to shop in one of Bon-Ton’s stores, Mansker said.

Other retailers, such as Kohl’s and JCPenney, are making significant e-commerce investments as well.  JCPenney is upgrading its website, adding interactive videos that focus on product and adding connections to social media.  Kohl’s is also upgrading its website this summer to handle 10 times more traffic than it could last November, said Erika Maschmeyer, analyst with Robert W. Baird & Co. in Chicago.

“Most brick-and-mortar retailers are seeing more growth online than in stores,” Mansell said. Because Kohl’s online sales are such a small part of the company’s business, there is great opportunity to expand the business, he said.

[Source:  Hajewski, Doris.  "Brick-and-mortar retailers kick up sales with kiosks."  JSOnline.com. Journal Sentinel,  22 May 2010.  Web.  4 Jun. 2010.]

In 2009, e-commerce non-travel spending essentially remained flat at $129.8 billion according to comScore.  The research shop indicates that 2010 should be a better year for e-retailers. This sentiment is echoed by Forrester Research which put forth its own numbers in a recent release. Forrester pinpoints 2009 e-commerce spending at $155.2 billion and predicts steady growth of 7% annually through 2012. At that point, Forrester analysts see growth increasing by 8% between 2013 and 2014, at which point  online retail sales will ring up at over $249 billion.

Based on numbers provided in their press release, Forrester analysts are expecting e-commerce sales to increase as a percent of total retail sales.  In 2009, e-commerce comprised 6% of retail activity. By 2014, they expect this number to reach 8%.  These figures all assume a steady growth rate in retail sales and this kind of assumption  might be risky considering the continued levels of high unemployment across the U.S.

However, Forrester Research Vice President and Principal Analyst Sucharita Mulpuru is looking for retail growth to come from the e-commerce sector, especially as consumers begin to explore the wonders of mobile online shopping.  Analysts also point to the high customer satisfaction rate (82%) with Web shopping channels when compared to rates for purchases researched online and then purchased in a store (61%). In addition, consumers are expected to continue buying products that have a well-established e-commerce presence and currently represent about 44% of total online sales – computer equipment, apparel, and consumer electronics.

While one can debate the specific numbers when it comes to measuring and projecting e-commerce volumes  4 years from now, the trend is clear. Retailers must establish an e-commerce presence and use online marketing strategies to ensure future growth.
[Sources: The 2009 U.S. Digital Year in Review. comScore. February 2010. Web. 9 March 2010; Forrester Forecast: Double-Digit Growth For Online Retail In The US And Western Europe. Forrester.com. 8 March 2010. Web]

To understand the full extent of the recession in the U.S. consider the 2% drop in  e-commerce spending in 2009. Total spending for the year leveled out at $209.6 billion and was broadly divided between travel e-commerce spending at $79.8 billion and retail e-commerce spending at $129.8 billion according to comScore.

A closer look at the details reveals reason for optimism for 2010. For example, while e-commerce spending dropped during the summer months of 2009, spending increased in November and December and that momentum is expected to carry into 2010.

Categories with the best growth rates and those that might therefore continue on a positive trajectory in 2010 include:

• Books & magazines
• Computer software (not PC games)
• Sports & fitness items
• Jewelry & watches
• Video games, consoles & accessories

The comScore study also noted that a ChoiceSteam survey might reveal one reason for the drop in e-commerce spending. Nearly 6 in 10 survey respondents did not find high quality product recommendations on retailer web sites. Consumers listed the following problems with recommendations that many have come to rely on:

• Recommendations did not relate to their search 54%
• Recommendations did not match their preferences 49%
• Recommendations were inappropriate 46%

Given these details, it’s a safe bet that marketers will be tweaking their Web sites and looking to use comments effectively for the 2010 shopping season.

[Source: E-commerce Spending Falls First Time, comScore, February 2010]