Online Sales Look Good, But Key Questions Unanswered

Is the heyday of the dot-com retailer coming to its natural end so soon? If third-quarter E-commerce retail sales figures released Monday by the U.S. Department of Commerce are to be believed, pure-play Internet retailers are lagging behind their mail-order and bricks-and-clicks counterparts. But regardless of who's making the sales, online retail is growing faster than ever, hinting at a potentially explosive holiday season.

The Commerce Department's sampling of 12,000 online retailers indicates that total online retail sales reached nearly $6.4 billion for the quarter that ended Sept. 30, a 15.3% increase from the previous quarter and the biggest increase since the department started breaking out E-commerce numbers a year ago. Robert Shapiro, a Commerce Department undersecretary, says he's uncertain whether the growth is indicative of more online shoppers or increased comfort with buying big-ticket items, but the fact that auto dealers were the second fastest-growing segment hints at the latter.

Gartner Group analyst Rob Labatt says online customers had looked upon their E-commerce experiences as tests, but the Commerce Department numbers illustrate their growing satisfaction with the online shopping experience. Labatt was not surprised that pure-play Internet retailers are being outsold by conventional competitors. Mail-order companies, he says, have superior database-marketing and customer-intimacy practices, while brick-and-mortar retailers boast huge customer bases and powerful brands. The pure-play Net retailers simply can't match that kind of retail experience. "They want it, but they can't afford it in today's venture capital environment," Labatt says.

What's still unclear is whether the increasing online retail sales signal increased retail spending through a growing channel or simply a shift of offline sales into the online environment. "That's a very important question we have to answer," Shapiro says. "We can't answer it yet." Despite the healthy growth, E-commerce sales still represented less than 1% of the $812 billion in overall retail sales for the quarter. - Tony Kontzer

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