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Online Shopping Reducing the Need for Stores

Small business owners that sell goods and services to the general public have to decide if it still makes sense to sell through retail stores. Recent data suggests that online shopping is quickly becoming the preferred means for consumers to purchase products. As part of their overall business strategy, companies have to decide if it makes financial sense to open retail stores to sell their wares.

Resent consumer shopping data is showing a trend that suggests that online shopping is becoming the favored way for customers to buy. Coremetrics, an online marketing company, announced that sales on Cyber Monday 2009, the Monday after Thanksgiving when consumers traditionally buy holiday gifts online, was up 16% from the previous year’s sales. These sales numbers are significant since the overall sales from both online and retail stores from the Thanksgiving sales period (November 26- 29) was up only 0.5% from the previous year. This suggests that online shopping is capturing a greater share of the market and that companies without an online presence may be missing a significant growth opportunity.

It seems that online shopping is greater for small to medium size businesses (SMBs). Webvisible, an online advertising firm reports that SMBs spent 91% more on search marketing in the 3rd quarter of 2009 then they did in the same period the previous year. Of the average search marketing expense of $1,658, over 60% of those funds went to Google for search-marketing campaigns. This increase in expenditures implies that SMBs are expecting increased growth from online shopping and are investing accordingly.

The increase in online shopping sales is considerable in the face of dwindling consumer confidence. A survey by Discover Small Business Watch reported that small business owners are expecting a reduction in future consumer demand. A poll of economic confidence for the period from October to November among businesses with fewer than five employees resulted in a decline in confidence of 12 points. Due to the reduction in consumer demand and other financial factors resulted in 52% of small business owners admitting that they experienced cash flow problems for the 3 month period. This was up from the 44% recorded in the previous period. In addition, 53% of small business owners expected consumer spending to weaken in the near future. Only 11% of businesses polled expected sales to increase. Although overall consumer demand has fallen during the economic recession, the sales from online shopping continue to grow.

Insight into future spending can be inferred by reviewing the sales in the travel and leisure market. A reduction in vacation planning and other leisure activity is usually the first sign of a reduction in discretionary income and an increase in consumer savings rates. Ypartnership, a travel research company, expects that consumers will continue to tighten their belts and spend less on vacations and other related activities. They suggest that consumers simply don’t have the money to spend on travel. Although the expectations for vacation spending are down, business travel is expected to stay unchanged, which is good news for businesses that support that industry.

Online shopping is expected to grow steadily in the face of an overall reduction in consumer demand. This indicates that businesses without a significant online presence will find it increasingly hard to maintain sales. It is becoming increasingly important for small businesses to attract and acquire customers using the internet, since that is where sales growth is expected to continue. Any businesses that have not established their internet presence and means for consumers to purchase online must do so quickly or prepare for significant financial issues in the near future. Companies with an online presence should invest in growing their online marketing and credibility strategies which will help them capture a larger portion of the growth in online shopping.

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