comScore analyzes state of the U.S. online retail economy in Q1 2010

First-quarter 2010 e-commerce sales indicate that non-travel online retail spending neared $34 billion for the quarter, up 10 percent over the same period in 2009, reported comScore chairman Gian Fulgoni at a recent webinar. While it was the first time sales have increased by double digits since Q2 of 2008, Fulgoni conveyed caution.
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First-quarter 2010 e-commerce sales indicate that non-travel online retail spending neared $34 billion for the quarter, up 10 percent over the same period in 2009, reported comScore chairman Gian Fulgoni at a recent webinar. The 10-percent jump was the first time sales have increased by double digits since the second quarter of 2008 -- but Fulgoni remained cautious in his tone.

“While the spending gains do provide reason for optimism, it should be noted that upper-income households are currently shouldering much of the growth. If the economy falters in the second half of the year and upper-income consumers return to a savings mode, we could still see growth decelerate,” he said.

By far, March registered the most impressive year-over-year growth rate increase at 17 percent, followed by April at 12 percent, January at 7 percent and February at 4 percent. But, the surge in spending in March and April was fueled in large part by consumers dipping into savings, pushing the personal savings rate down to 2.7 percent in March. That is the lowest savings level since September 2008, Fulgoni noted.

He also cautioned that the current job loss reports indicate job losses are deeper and will last longer than during any other recession in U.S. history. “We need a growth of 5 percent in the GDP for a full year to drive job growth down by just 1 percent,” Fulgoni said. Unfortunately, he pointed out, the recent GDP report from the U.S. Bureau of Economic Analysis published a GDP for Q1 of only 3 percent.

Concern for job losses was underscored by a comScore survey in April. It found that among consumers making $100,000 or more annually, unemployment and job security represented the economic conditions that were of most concern. The number jumped to 42 percent when all consumers were factored in. In fact, in the same comScore survey, 59 percent of all consumers still rate the current economic climate condition as poor.

“We are still looking at a consumer who continues to cut back on spending,” Fulgoni said. “And some are saying we will never return to the free-spending ways of the past.”

All of this economic concern has been somewhat of a boon for the Internet and e-commerce as more consumers (59 percent) state that the Internet has become a “slightly” to “very important” means of helping them make buying decisions. “Prior recession dislocation-effect for brands has been positive for some brands and negative for others. In this recession, it has been positive for the Internet,” said Fulgoni. “Consumers have turned to the Internet more and caused marketers to increasingly turn to the Internet -- evidenced by the increase in the online share of advertising dollars.”

However, even as the consumer is turning increasingly to the Internet, comScore surveys are finding consumer loyalty to specific retailers and brands has been steadily decreasing over the last two years. And, during this same time period, the likelihood of a consumer going online to shop for deals or use coupons has dramatically risen. Comparing July 2008 with April 2010, comScore found that 16 percent more consumers were shopping at different retailers to find a deal and cut shopping expenses. Nearly 8 percent more were using online coupons. And, 5 percent more were buying generic brands or different brands than they might prefer.

Consider that 29 million consumers visited coupon websites in April 2010, according to comScore’s Media Matrix. The top 10 coupon sites included Coupons Inc., RetailMeNot.com, Eversave.com, Groupon.com, MyPoint Sites, RebateGiant.com, CouponMountain.com, SmartSource.com, CouponCabin.com and Dealspl.us.

What was the major deciding factor for consumers when determining where to make an online purchase in Q1 for 2010? Free shipping was the top vote-getter, with 78 percent of those responding saying it made a difference in terms of saving costs and making a buying decision. Putting items on sale garnered 67 percent of the responses. Paying no sales tax grabbed 44 percent of the votes followed by -- yes -- the ability to use a coupon at 38 percent.

In terms of finding a winner in the e-commerce consumer-grab, larger retailers benefited the most because, according to Fulgoni, they were better positioned to leverage economies of scale and provide online shoppers with meaningful incentives to attract them, such as free shipping, significant discounts, etc.

“What is most challenging for smaller retailers in this economic climate is the lack of availability of credit,” said Fulgoni. “It is a shame that certain rules were not established a year ago to provide capital from the bank industry to smaller businesses. Perhaps a change is coming, though, as there is a proposal to pump $30 billion into a program to make credit more readily available to smaller businesses, which would allow them to compete more evenly with the larger companies.”

In terms of segments or categories of e-commerce that are performing better than others, the outdoor and fitness industry should take heart with the knowledge that sports and fitness as a category is showing strong e-commerce growth year-over-year in Q1. In fact, it is one of the categories of business that is outperforming the total Internet in terms of growth of sales at 11 percent or higher.

--Michael Hodgson

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