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Online shopping growth to slow in next decade

Most people who haven’t yet dabbled in online retailing probably will continue to stay on the sidelines, analysts believe. That’s going to make it harder for companies to continue the ultra-rapid pace of growth they experienced in the early, halcyon days of the boom. By's Allison Linn.
Leizl Tiangco takes a break from her wor
Analysts say online retailers have growth potential, especially if they work hard to improve their game in the coming years.Robyn Beck / AFP-Getty Images file

When Internet pioneer began doing business in 1995, eager analysts forecast a day when people would sit around all day in their pajamas, relying on their computers to order everything from dog food to groceries. Many consumers would see little reason to venture out to the shopping center and visit an actual store, analysts predicted.

More than a decade later, online stores have become an established part of the retailing world but those early predictions appear unlikely to ever pan out.

In the next five to 10 years, those who are already comfortable shopping online are likely to grow even more so, funneling more and more dollars to Web sites as they continue to increase the number and amount of products they buy online, experts say.

That’s the good news for online merchants.

The bad news: The bulk of the people who haven’t already dabbled in online retailing are likely  to stay on the sidelines, analysts say. That’s going to make it harder for companies to continue the ultra-rapid pace of growth they experienced in the early, halcyon days of the online retailing boom.

“Pretty much, most of the people who are ever going to be buying online are online,” said Patti Freeman Evans, senior retail analyst with Jupiter Research. “From the standpoint of behavior change and big shifts in adoption, it’s happened and it’s done.”

Jupiter is expecting online retailing to dip below double-digit percentage growth rates sometime by around 2010, and to plateau at some future date after that.

At this point, analysts also expect that traditional, store-based retail will continue to dwarf online retailing. Forrester Research expects U.S. online sales to grow from $132 billion in 2006 to $271 billion in 2011 — but still to comprise just 9 percent of overall retail sales.

Still, online retailers do have growth potential, especially if they work hard to improve their game in the coming years, analysts say. Most mainstream retailers maintain a Web presence, but many of those online shopping experiences are woefully inadequate, said Forrester analyst Sucharita Mulpuru.

“I hardly think that retailers have done everything that they can do to make sure that they’re getting (what they can) out of the channel,” Mulpuru said. “There’s still a lot of mistakes being made, still a lot of basic oversights.”

Problems include Web sites that don’t include enough information about a product, such as detailed pictures, a size chart or accurate measurements. Many also aren’t good enough at maintaining up-to-date information about things like product availability, further alienating a loyal audience that might like to devote more of their shopping dollars to the Web, Mulpuru said.

“They want to use the channel, but they can’t always use the channel as much as they would like because the information isn’t there,” she said.

As more companies solve those problems in the coming years, she thinks there will be opportunities to boost sales, especially in areas such as home products, clothes and cosmetics.

Mulpuru also sees an opportunity to revive an online retailing trend that failed spectacularly in the early days of the dot-com boom — online grocery shopping. While groceries will remain a small part of the overall market, Mulpuru says such Web sites could do more to appeal to affluent, busy people, such as working moms.

Retailers also have another incentive to improve their Web-based sales arm. Even those customers who opt not to purchase many items online are expected to increasingly turn to their computers to research items including cars, houses or even engagement rings.

As online retailing growth slows, Evans says stores will gain a competitive edge if they can get better at integrating their online and brick-and-mortar operations. Already, some stores are experimenting with things like ordering online for in-store pickup, or offering a limited assortment in stores combined with a wider online selection.

A trip to the mall or a downtown shopping center is — and will remain — a form of entertainment for many Americans. Still, Freeman said that’s not the only thing keeping people from shopping online. Even now, many remain wary of turning over financial information to online retailers, or unsure of whether they will receive the product on time, in the right color or even in one piece.

“It’s more trust,” she said.

That’s one reason she believes the outlook for online retailing would perk up considerably if new technology were developed that gave people the ability to much more easily mimic the real-life experience of, say, touching or trying on a product. Unfortunately for technology geeks, however, the ability to do something like conjure up a life-size hologram of a coffee table in your living room is, for now at least, not even on the horizon.

“Online is very convenient (and) it has a lot of offer,” she said, “but there’s certain things you’re going to want from a store.”