2009 Ecommerce and Web Sales: What we know and what we think we know

2009 is shaping up to be a year of change, and that is no surprise, since 2008 also managed to rock the boat a bit. The main change in 2008 was that previous trends went out the door. Going into 2008, most experts predicted web sales growth in the 20% range, but a funny thing happened to the economy along the way.

What we know – Looking back at 2008

At this point, it’s well documented what type of economy we ran into at the end of 2008. Consistency compared with the Great Depression, global wealth shrunk significantly and according to the latest jobs report, the US has not seen job shrinkage like this since 1945 (and that drop was created artificially by the end of World War II).

The fallout left some major players in bad situations, with bankruptcy filings by Circuit City, K-B Toys, iFloor, Lenox, and others (see Internet Retailer). The lone good news was the falling of gas prices, but with gas supplies being cut back by OPEC,  gas prices are slowly increasing and should rise back up steadily throughout 2009.

In looking at e-commerce, web sales were flat year over year (see Internet Retailer). In reviewing Q4 2008 sales, according to comScore Networks, there was some peaking, like the day after Thanksgiving (Black Friday) through December 1st, up 13% since 2007. Total web sales rose 7% the following week (Dec 1-7), then fell 2% the next week (Dec 8-14).
Looking at the entire period, from October 1 – December 28, total web sales were down 4%, which marks the first time this has happened since comScore began tracking web sales in 2001 (see Internet Retailer).

So, in the midst of the floor falling out of the retail season, did anyone do better? The answer is ‘yes’.  According to a survey by Shop.org and Forrester Research Inc., 63% of 84 retailers surveyed, reported a year-over-year rise in sales Nov. 1 through Dec. 21.  The best growth in the group surveyed was said to be among mid size and multi channel retailers (see Internet Retailer).

Outside of sales, we can say that traffic was also up at some major sites. Sites experiencing significant gains were Amazon, Apple and Wal-Mart. However, some major brands found their traffic was down significantly like eBay, Best Buy and Overstock.com. (see Internet Retailer)

What we think we know: 2009 e-commerce predictions

Now that we are done with the 2008 data, the executive question then emerges, ’so what?’.

First, let’s talk about all the data just reviewed. It’s pretty obvious web sales were hit, just like all of retail sales were, including brick and mortar, catalog, etc. Consumer spending was down to such a low point, the momentum of the previous years in ecommerce growth were brought to a sudden halt. However, consumer behavior is still shifting to online shopping and research. Conversion rates were down as shoppers had a long list and short budget, but for some, free shipping and heavy discounts helped greatly. In looking at the high traffic sites, these were sites known for discounts (Walmart), or simply on a wave of popularity (Apple). Sites left out were either suffering from other issues (eBay), or hurt from a lack of luxury based shopping (heavy consumer electronics retailer Best Buy). In fact, from my reading, Best Buy is currently in 2009 experiencing a surge in traffic since Circuit City is struggling for life, but still not seeing high revenue as purchases are hard to come by.

In case you have not seen the writing on the wall, or perhaps you are nowhere near building a 2009 budget, this year will be the year of monetization (see William Flaiz’s piece, among other predictions, on SearchEngineWatch). Budget’s will be tightly controlled, and in many cases reduced quite a bit. From a macro viewpoint, there will be a strain on Web 2.0 standouts and will bring pressure to begin to bring in money. Twitter which has yet to put together a plan to make money, and social networks like Facebook and MySpace, which so far sell banners with notoriously low click through rates, will be put under pressure. New technologies and entrepreneurs should build a strategy where either imminent monetization is present, or a source of funding is already in place (i.e., get some friends together now). With only 6 venture backed companies going public in 2008 and the credit crunch still taking it’s toll, VC outfits are not lining up right now to help out and won’t be for some time.

What can typical retailers expect? I’ve seen some growth estimates in the 4% range (see emarketer), however, I’m not sure how realistic this. For a sobering report on just what the odds are, I strongly suggest taking a look at Seqouia Capital’s PowerPoint from October 2008. This presentation started the lock down cycle for a number of VC backed companies, and rightfully so. The ‘death spiral’ shown here, where a company’s expenses quickly break off from revenue, is a perfect example of why 2009 should be about not just site optimization, but complete business optimization.

So, the economic retooling has begun. The great thing is, if you want a green economy, an economy not structured on borrowed money and consumer debt, an economy to operate on new principles…well, that should be an easy choice now.
On a company level, take the growth you saw year over year in Q4 2008, and that is close to what you should expect over the next 6 months. This is very much survival time in the sense of working to make a profit. I have seen some companies cutting budgets regardless, and this machete approach makes no sense if the program is making money. A set 50% reduction will do no good, but if a program or programs are under performing for the past 4 months or more, then try to put things on hold. Also, work with partner companies. Everyone is under the same pressure, so keep in mind there are no free rides but people do understand the need to stay in business. I would expect to see more casualties in Q1 and Q2 2009, but things start looking brighter after that. Current trends point to a turn around beginning in Q3 2009. If you can make it that far profitably, indications are an explosion in growth beginning at then. Things won’t turn around immediately, but if government and private organizations continue to accurately and responsibly work on issues instead of borrowing to ignore them, then the end of 2009 looks promising and 2010 may just begin something special.

January 22nd, 2009