• by Masha Geller , January 7, 2003

Buoyed by e-retail’s strong showing during the holiday season, Jupiter Research has just released a very optimistic set of predictions for the online retail sector.

According to the researchers, e-retail will grow by 30% in 2002, and by an average annual growth rate of 21% between 2002 and 2007. The outlook is that by 2007, more than 5% of US retail sales will be transacted online.

More importantly, Jupiter says, by 2007 the Internet will influence 30% of all offline retail purchasing, creating a clear mandate for manufacturers and retailers to view the Web as a critical marketing medium, as well as a transactional channel.

Jupiter researchers say that one of the key takeaways from the study is that overall online market growth is strong despite a poor retail economy and that the three principal drivers of online retail spending over the next five years will be growth in the size of the online population, growth in spending per buyer, and growth in the percentage of online users who shop online.

Jupiter forecasts that the number of US residents that access the Internet will grow by 11% during 2002, from 141 million to 156 million. As a result, the online population will represent more than one-half (54%) of the overall population by year-end.

Online tenure remains the most significant driver of online shopping growth, Jupiter says, and by 2007, 72% of the online population will have an online tenure of five or more years, up from 39% currently. According to the researchers, online tenure has been the principal driver of consumers' willingness to purchase from categories perceived as risky (i.e., price point is high or the risk that the product will not meet expectations is high). However, based on recent conversations with online retail executives, Jupiter expects this correlation to diminish slightly. Because new online shoppers are more comfortable with the Internet than were those in previous years, such shoppers today appear to be more likely to buy from categories that have been considered risky by new online shoppers in the past. As such, online consumer electronics retailers like CircuitCity.com, which in the past could assume that customers were familiar with online shopping, must ensure novice shoppers can use their sites easily.