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INTERACTIVE Do you stick to nationally recognized retailers when purchasing goods online? Yes No View Results

July 29, 1999
Web posted at: 4:05 p.m. EDT (2005 GMT)

by Jeff Partyka

(IDG) -- The outlook is far from rosy for small and midsize merchants in the United States who want to take their businesses online, according to a Forrester Research report.

The Forrester forecast predicts a drop in such companies' percentage of overall online sales from current levels of 9 percent to 6 percent by 2003. The single-digit figures reflect an off-balance picture, as small and midsize retailers account for approximately 50 percent of all offline retail sales, Forrester said in Monday's announcement of the report.

However, even that figure is going down, according to Charlene Li, Forrester's senior analyst in New Media Research.

"It used to be up around 70 percent 15 or 20 years ago," Li says. "The 'Wal-Marting' of America is definitely happening, and small businesses are losing out to the bigger retailers, which are just continuing to solidify their position offline as well as online."

A number of factors, including technology, brand, financial costs, and scale of operations give the bigger national merchants the upper hand on the Internet, according to Forrester. The cost of building a full-featured commercial Web site alone, which Forrester estimates is "well over" $1 million, is enough to keep most small American businesses out of the game.

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Advantage of size

Even offline, the large merchants are offering very real advantages to consumers, and are "far superior to most local retailers," Li says. "There are always exceptions, but by and large that's the case. In a large bookstore, you can get coffee, sit in a comfortable chair, lounge for hours -- it's really an experience."

The days of local businesses focusing strictly on retail items -- particularly on products such as books, music and software, for which online stores are already scoring 20 percent of sales -- may be numbered, but those offering services will be better off, according to Forrester.

"That's not to be underplayed," Li says. "At some point, you'll want a personal experience, and you can't get that online. ... There's still an opportunity online for small and midsize businesses to drive traffic to their offline stores, and that offers a way for them to differentiate themselves. It is pretty dismal when you look at the numbers, but there is that silver lining in the dark clouds."

Forrester surveyed 20 national and 30 local marketers to gather the information for its report, "Local Commerce Goes National." Taken together, the marketers expect their online sales to more than double by 2002. They predict that today's figure, which is 8 percent of total revenue, will jump to 17 percent. They also expect to increase the percentage of their online budgets that they spend on Web advertising from 28 percent to 33 percent during the same period, according to Forrester.