:: Industry Brief - Direct Selling and the Internet ::


by Adam G. Southam

Depending upon your industry, sales over the Internet is currently accounting for somewhere between 4% and 18% of total retail sales. The numbers have been growing steadily for the past six years and show no signs of slowing. Time savings, selection, knowledge and convenience drive consumers to shop and buy online. The question is - can you afford to miss out on this incremental sales revenue?

According to Nielsen Online, of about 341 million people in the United States and Canada, 260 million, or 76%, use the Internet daily! Online retail sales grew 10% to $34 billion in the first quarter of 2010, marking the first time growth rates reached double digits since the second quarter of 2008. Forrester Research predicts that consumer interest in online sales will continue to grow and reach $250 billion annually in the next five years, accounting for 8% of total U.S. retail sales. By 2014, more than half of total retail sales - 53 percent - will be affected by the web, i.e. consumers going online to do product research. That's up from 42 percent last year.

Of the top 1000 Direct Selling Companies, 35% still do not sell online, while 17% sell online only to existing customers, blocking new customers from buying without first being connected with a sales associate.

Online sales in the first quarter of 2010 were driven by high- and low-income consumers, comScore Inc. reported. Consumers with incomes under $50,000 increased online spending by 18%; those with incomes over $100,000 increased online spending by 14%.

Finally, we know that the Internet shopper will not be corralled into offline buying behavior unless absolutely and indelibly committed to the product. There are simply too many options for great products today. Moreover, what rational marketer would want to work against consumer behavior and force an offline sale? The world’s leading retailers know that it is essential to meet the demands of the consumer where and how they want it or suffer lost revenues as a result.

Aeropostale online sales realized dramatic growth reaching 85% last year to $79.1 million from $42.8 million. Both Macy’s and Aeropostale are part of a growing number of companies that report online results distinct from overall store sales results - a practice which makes it easy to see the contribution of the online channel to a company’s overall growth. Macy’s grew 16% online and shrunk 9% offline; Kohl’s grew 48% online and shrunk 7% offline, American Eagle grew 26% online and shrunk 10% offline. Even Ralph Lauren grew 19% online while shrinking 5% offline.

One of the greatest tools for online sales revolves around social media like Facebook. At present, a remarkable 8% of all time spent on the Internet is spent at Facebook. Direct Selling Companies are situated strongly to leverage the power of social media by the very nature of their sales constituencies and customers. According to comScore, 26.3% of all web display advertising takes place on social sites, yet only 10% of retail display advertising is on social sites. Social sites’ cost per thousand consumer impressions is 55 cents, while the average across the Internet is $2.55, demonstrating a lower-cost outlet to reach consumers.

In closing, as a Direct Selling Company, the power of your social networking provides leverage to success from online sales. Online sales are growing across all sectors, with the greatest growth across industries like beauty and nutraceuticals, where competition is stiff. There are multiple methodologies that enable Direct Selling Companies to sell on the Internet without circumventing their sales constituencies and are worthy of investigating. Whether 4% or 18%, there are not many companies that can afford to give away that amount of revenue and resulting profits from their bottom line.