Online Sales Soar - InformationWeek

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Online Sales Soar

American consumers spent nearly $20 billion buying stuff on the Internet in the first quarter; that's nearly 25% more than they did a year earlier. Yet, online transactions represent only 2.2% of all retail sales.

A new government report makes it clear that more consumers are at ease with buying stuff online.

Americans spent $19.8 billion online in the first three months of 2005, a 6.4% increase from the last three months of 2004 and whopping 23.8% increase from the same period a year earlier, the Commerce Department reported last week. Still, online retail sales represent a mere 2.2% of all first-quarter retail sales.

Economist Anne Wenzel, principal at the economic and market consultancy Econosystems, says more consumers are comfortable with buying goods online, citing a recent University of California at Los Angeles study showing that consumers with three or fewer years of online experience feel at ease making Internet purchases. "It's a change in lifestyle," she says.

Most online purchases fall into selected categories of products, such as travel, books, and music, Wenzel says. Mostly, she says, the Net remains a great place for consumers to research products before purchasing them at brick-and-mortar outlets, such as auto dealerships. "Dining out will never be replaced online," the economist says.

Wenzel sees herself as a typical online consumer, checking out GasBuddy.com to locate the cheapest gasoline prices in her neighborhood. But, she's also buying more books than she had in the past because of deep discounts she can get from online outlets such as half.com. While the majority of online sales replace brick-and-mortar purchases, she says, some transactions represent deals that might never have occurred in the physical marketplace, giving a boost -- albeit a virtually immeasurable one -- to the economy.

The Census Bureau began tracking online sales in fourth-quarter 1999, when Internet retail sales totaled just under $4.5 billion. Then, E-commerce retail sales represented just 0.6% of total retail sales. In the past 5 years, online sales as a portion of overall retail sales have soared by more than 2-12 times.

Census Bureau data is seasonally adjusted; first-quarter 2005 figures are preliminary and fourth-quarter 2004 stats are revised.

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