The Future of Online Sales
I am fascinated by technological advances and how long it takes humans to figure out how to make use of them. Just think how long it has taken to get advances resulting from the information revolution into use. A good case in point: buying online. Unlike some, I do not like to shop. But if I have to, I far prefer to do it online than by visiting stores. In fact, the only things I go to “stores” for are auto fuel and fresh vegetables. In this piece, I look at how rapidly online shopping is coming into use and who are the largest players in the industry.
The Growing Share of Online Shopping
As Table 1 indicates, the online shopping share is still quite low, only 8.6% worldwide. Of note, there are more online shoppers in Asia than in the West and very little online shopping is done in Latin America. There, it could be that relative to other regions, shopping is a time for socializing.
Table 1. – Online Shopping Shares, 2016
Looking ahead, the graph below suggests that globally, the online share will double by 2020.
I have found two data sets for the online share growth by country. Table 2 gives projections for developed nations and China. China has a high share already and is projected to continue growing at a very high rate. The UK currently has the largest online share while the US is in the middle of the group with less than overwhelming growth expected.
Table 2. – Projected Growth in Online Retail Share, Developed Countries and China
As might be expected, online shopping rates will grow most rapidly in developing nations where Internet access rates are low. As Internet access grows, so will online shopping. It is notable that two of the largest countries in the world, India and Indonesia, are at the top of the most rapidly growing list.
Table 3. – Countries with Highest Projected Online Shopping Growth Rates (2016-21)
While the online share of US purchases is quite modest, its shoppers buy more online than any other country.
Table 4. – Average Annual E-commerce Revenue by Online Shopper
What Is Purchased Online?
Data on how much is spent online by product is hard to come by. However, Table 5 provides the results of a survey asking online purchasers what they have ever bought on line. And while most food is purchased in stores, it is notable that three food categories are mentioned.
Table 5. – Internet Users: Have Ever Purchased Products Online
Digital Buyer Penetration
Globally, 53% of those with Internet service have bought something online. Table 6 lists countries with the highest rates.
Table 6. – Internet Users Making Online Purchases: Countries with Highest Rates
Why People Are Reluctant to Buy Online
Table 7 provides the result of a survey asking why people don’t buy more online. Many worry about how safe online purchasing is.
Table 7. – Why People Do Not Buy More Online
Not surprisingly, young people are more comfortable buying online than older people are. And this age differential will continue to be a major driver of online purchasing growth.
Table 8. – Those Making Online Purchase at Least Weekly By Age
The US Transition
Within the US, the switch to online shopping is proceeding gradually. As Table 9 indicates, American retailers are moving online at different rates. Early on, it was not apparent to many that online sales were key to their survival. It is now clear to all of them that at least some online sales are critical going forward.
Table 9. – Leading US Retailers
Staples has managed its transition to online sales very well. However, its sales growth has ended and it is looking to buy other companies. Quite probably, Staples (and other retailers) are losing sales to Amazon because Amazon is making it easy to buy everything on its site. Amazon’s growth has been really amazing. It has 1.5 million accounts in 1997. That jumped to 304 million in 2015, a compounded average annual growth rate of 46%!
Major Online Services
When major technological transitions occur (consider energy), much money is made and lost. And the online transition will not be an exception. Table 10 provides a list of large Internet companies ranked by receipts per employee (higher for companies not selling physical products). Some on this list have huge price/earnings ratios while others run deficits. These are all high-risk investments.
Table 10. – Leading Internet Companies by Category
Rapidly changing technologies are causing major industry transitions. New companies are being formed and existing ones will need to be nimble to survive. This is certainly the case for the online industry where almost all investments are high risk.