The State of Retailing Online

Carrie Johnson & Brian Walker Forrester Research, Inc.

Agenda
Findings from The State of Retailing Online: Merchandising And Web Optimization Report Focus on Merchandising Tactics Q&A

The State of Retailing Online: Merchandising And Web Optimization Report

We fielded our survey in Q1 (the 11th year!) and asked retailers about: Usage, effectiveness, and prioritization for 75 areas affecting Web merchandising, checkout, and overall customer experience 125 retailers participated Shop.org members get a free copy: The report was released this morning! The final survey on profitability just closed: Thank you to those of you that participated

Key findings from The State of Retailing Online

While bumpy in spots, online sales are chugging along and expected to hit 17% growth over last year
$400 $350
$301 $335

$300 $250
$235 $204

$268

11% of total retail sales by 2012

(billions)

$200
$147

$175

$150 $100 $50 $0 2006 2007 2008 2009 2010 2011 2012

Online merchandising continues to get more attention

As online sales have grown, many retailers have rolled online departments into a direct group This moves online merchandising into less of a marketing role and into a true merchandising one And also places an emphasis on operations that stores and other channels have always prioritized

Retailers focus on four areas this year

1. 2. 3. 4. The browsing experience The checkout experience Back-end fulfillment and operations Measurement and analytics

The front-end experience: Back to basics

73% plan to implement ratings and reviews; only 27% have outlet plans

The checkout experience: Focusing on payments

Despite the high effectiveness ratings of traditional payment programs -- PLCC and stored value less than 30% plan to offer either

Back-end fulfillment and operations: Not used as competitive differentiators

Prepaid returns and expedited shipping have propelled Zappos and now Amazon through its Prime program

Big (retailer) brother is watching!

And now theyre listening to users too!

These tactics all incorporate user feedback into the design process

OK, but now what?

I know its 2008, but..

Here are four realizations we need to acknowledge: 1. Conversion rates continue to be mediocre 2. Content is hard, but you have to get better at it 3. Lack of focus on real optimization 4. Online Merchandising is under-valued as an discipline

Conversion rates continue to lag, can we do better?

Average cart abandonment rate 60% 53% 52% 48% 2.6% 40% 2.4% 34% 28% 20% 24% 21% YOY online sales growth 1% 29% 2.4% 50% 2.8% 3.1% 3% 56% 4%

Average conversion rate

2%

0% 2003 2004 2005

Base: online retailers Source: The State Of Retailing Online reports, 2002-2008

0% 2006 2007

Greasing the wheel, or squeezing the turnip?

eCommerce Sites Still Fail To Meet Needs

Distribution of Retail Web Site Review scores 9 8 7 Number of sites 6 5 4 3 2 1 0

Fail Pass

Average score: 5.1

-30

-25

-20

-15

-10

-5

10

15

20

25

30

35

40

Web site review score

Source: Forresters 170 Retail Web Site Reviews, versions 3-7

And though better, still show only modest gains

Distribution Of Retail Web Site Review Scores Since 1999
Very poor (<-14) Poor (-14 to 0) Fair (0 to 14) Good (15 to 24) Very good/Pass (25+)

2007-2008 4%

38%

27%

27%

4%

2006 4%

36%

52%

4%4%

2005 3%

24%

45%

18%

9%

2004

13%

24%

39%

11%

13%

1999-2003 3%

30%

48%

13%

8%

Base: 170 Web site reviews of retail Web sites completed between 12/99 and 4/08 (percentages may not total 100 because of rounding)

Get Better at Content, Now

Content is the focus of a web users attention.

- Jakob Nielsen

Good News! Retailers Focus On The Foundation

Consumers Rank Product Content Types

Images, Reviews & Compare rank highly Recommendations and Videos do not rank as high

But look at Free Returns

Why are reviews so important?

Context and details set expectations and increase confidence

Content going beyond the basics

FINDING NIKON

?
1,999 Cameras

Its not just me

Why did you come to the manufacturers site today?

Get product information

80%

Find local stores that have the product in stock

25%

Buy the product

21%

Learn about accessories

16%

Get product support or service

5%

Base: 10,656 visitors to manufacturer Web sites (multiple responses accepted)

Source: Channel Intelligence 2006 Referral Site Survey, conducted in conjunction with Forrester Research

How did I finally Find Nikon? Her Dad

Key Tactics to Better Product Content & Discoverability

1. Focus on the Product Go deep on content, even if only in key critical categories Leverage product expertise and assets internally, from customers, and from vendors but be agnostic to brand Optimize processes and invest in tactical systems improvement 2. Focus on the Customer Ensure legibility and information digestibility Ensure the answers are there e.g. fit, compatibility, reviews Fix on-site search indexing and binning Improve categorization, focus on merchant and customer Cross populate product More ways to shop Practice SEO basics e.g. improve URLs, titles, JavaScript

3. Focus on discoverability

4. Be a merchant - Dont over assort, and be a guide

Oh, and here is what I ended up with

Nikon D40

Carrie Johnson VP, Research Director Forrester Research Cjohnson@forrester.com 650-581-3882 Brian Walker Senior Analyst Forrester Research bwalker@forrester.com 206-605-4656

2008 Shop.org Online Merchandising Workshop

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