Accruing

Accruing Interest Newsletter is sponsored by the Florida Real Estate Journal.  Other articles from the Journal can be found by clicking on the Journal's icon at the bottom of eloanmasters home page.

Internet sales: Making sense of the numbers

By Ron Starner, Publisher

Florida Real Estate Journal

WINTER HAVEN — Making sense of the mind-numbing numbers coming from the forecasts of Internet retail sales is no easy task.

In fact, at this point it’s nearly impossible. Here’s why:

Most economists and CPAs can’t even agree on sales figures for Internet retail sales from the past. To illustrate this, try this quiz:

In 1998, Internet retail sales were estimated to be:

a) $3.8 billion.

b) $4.8 billion.

c) $7.8 billion.

d) $14.5 billion.

The correct answer: All of the above.

As Michael Baker of the International Council of Shopping Centers explains in his recent article, "The New Cottage Industry — Forecasting Internet Retail Sales," measuring the impact of e-commerce is not an exact science.

This is true for several reasons: 1) Economists and accountants have not yet agreed upon a clear definition of an "online sale." 2) Some sales estimates count only business-to-consumer sales, while other estimates count business-to-business sales. 3) Many sales estimates track only U.S. transactions, while other estimates track global sales. 4) Because the e-commerce component of the Internet is expanding so fast, it is extremely difficult to track numbers of hard sales.

On top of all these concerns, various estimators use differing methods to derive their forecasts. One of the most respected Internet sales forecasters — Forrester Research of Cambridge, Mass. — relies heavily upon the supply-side method of interviewing online retail executives to arrive at estimates for individual merchandise categories.

Forrester also employs the demand-side method of mailing surveys to consumers. For its November 1998 projections, the firm mailed surveys to 120,000 households in the United States and Canada.

In the long run, the demand-side approach may actually be more reliable because it gives the researcher the ability to answer the most important questions, such as: How many consumers are connected to and using the Internet to shop? How frequently do these consumers shop online? What kinds of merchandise are purchased online, and why? What is the average expenditure per purchase? What would induce those who only browse online to actually buy something?

Answering these questions is critical to formulating reliable forecasts of Internet sales, because the answers give the researcher a glimpse of the factors motivating people to shop online.

What shopping center owners and managers should take note of, then, are not the actual numbers being supplied by Internet sales forecasters, but the larger trends shaping consumer behavior patterns.

At least two such trends are worth noting here: the empowerment of consumers who take the initiative to conduct pre-purchase research online; and the innovation of Internet "micropayments" for retail shoppers.

Whether or not shoppers are using the Internet to make their purchases, they are already benefiting from the buying power the Internet gives them. The fact that a shopper can now use the Internet to find the best possible price for a specific item empowers that consumer when he or she is ready to make a purchase.

Secondly, start-up companies like Interactive Transaction Services Inc. of San Francisco are now making it easier than ever for consumers to make small purchases online. According to a story Aug. 5 in The Wall Street Journal, ITS is unveiling iPin, a service that allows consumers to add small purchases onto the bills they pay each month to their Internet service provider.

The strategy is both simple and efficient. Instead of requiring consumers to fill out registration forms and give their credit card numbers every time they make an online purchase, consumers will be required only to send iPin their e-mail address and choose a personal identification number.

As more Internet service providers sign up with services like iPin, it will become easier and more convenient for consumers to make purchases, particularly small impulse buys, online.

Another roadblock to online transactions is the time-and-delivery component, but even that obstacle is shrinking as more community-based warehouse-and-delivery companies set up shop. One such start-up, Kozmo.com, has already attracted the interest of the REIT sector.

What does all this mean for shopping center owners and managers? It means that owners and managers should be paying more attention to the behavior patterns of their shoppers, and less attention to the actual estimates and forecasts of online sales.

Will Internet retail sales reach $108 billion in the year 2003, as Forrester predicts? Perhaps, but that’s not the real story.

The real story is that the rapidly growing world of e-commerce offers a huge new opportunity for traditional shopping centers and their merchants.