US online retail sales jump past $100 billion mark in 2003

Washington, DC - Revenues of online retailers skyrocketed to $114.1 billion, according to a study released by Shop.org. Having reached break-even levels in 2002, the segment has turned into a "profit engine" in 2003, representing 5.4 percent of all US retail sales.

Forrester, who conducted the study for Shop.org, a division of the National Retial Foundation, said that online retailers saw a staggering increase in sales of 51 percent year-over-year in 2003. Each market segment reported solid growth. Major drivers were online travel with a sales jump of 91 percent to $52.4 billion, home and office ($11.1 billion) and computer hardware and software ($11.0 billion).

The sales growth in 2003 surpassed initial expectations of $96 billion. Shop.org attributes the sharp increase especially to soaring online travel sales as the travel industry began to recover from a somewhat low level in 2002. A rebounding industry and consumer confidence helped boost actual sales to $42.3 billion, instead of the expected $27.4 billion, Shop.org said. Excluding travel revenues, online sales grew 34 percent from $53.5 billion in 2002 to $71.8 billion in 2003.

Only one sector posted a revenue decline in 2003, according to the study. Auto and auto parts sales decreased by 20 percent. The category however is expected to gain 13 percent during 2004.

After breaking even in 2002, online retailers were poised for profitability in 2003. Last year, online retailers collectively raised average operating margins to 21 percent. Catalogers continued to be the most profitable online sellers, with operating margins of 28 percent, up from 22 percent in 2002. Even Web-based retailers joined the trend after taking control of marketing costs ; operating margins of those retailers were up 15 percent compared with margins of negative 16 percent in 2002, according to the study.

Forrester also found that a greater number of retailers are continuing their march to profitability : 79 percent of all online retailers were profitable last year, up from 70 percent in 2002.

"Online retailing has arrived as a profit engine with double-digit operating margins," said Elaine Rubin, Shop.org chairman, in a statement. "Retailers online have found the right balance between selling a product, acquiring and retaining customers, and earning a profit, which is powerful news for consumers and retail investors."

The organization expects less growth for 2004. Online retail sales are expected to grow 27 percent to $144.6 billion. Significant revenue jumps are expected in the health and beauty (61%) ; apparel (42%) ; and flowers, cards, and gifts (41%) sectors.

Online sales are expected to reach 6.6 percent of total retail sales in 2004, up from 5.4 percent in 2003 and 3.6 percent in 2002. Twelve sectors will experience a retail share of 6.0 percent or higher this year, compared with eight sectors last year.