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E-Commerce in a Slow Economy

Kim Hart

Is the slow economy affecting e-commerce growth?

According to figures released by the Commerce Department last week, online sales grew by only 13.4 percent during the first quarter of the year, compared with the same period last year. That's a decent drop from the 19.8 percent growth e-commerce experienced in 2007 over 2006.

But that isn't entirely a result of economic conditions, said Jeffrey Grau, senior analyst at eMarketer. For the past five years or so, e-commerce growth has come mostly from increased sales to existing online shoppers, rather than from new buyers. Therefore, the slow-down is somewhat inevitable.

Still, e-commerce sales growth is higher than overall retail sales growth, which has held steady at about 6 percent over the past five years, Grau said. During the same time, online retail sales growth has been about 25 percent.

The downturn may even drive people toward the Internet as they comparison shop to find the best deals and try to save on gas.

The idea that e-commerce is more insulated from economic strife was echoed at a panel discussion held by Google last month in the company's Washington office.

Ed Garrubbo, chairman of the Electronic Retailing Association, said people are still spending money, but they are doing so more cautiously, such as turning to the Web to do more research.

While the total number of searches for luxury goods is down, the overall number of searches for retail goods is up, he said.

Robert Atkinson, of the Information Technology and Innovation Foundation, said that online retail sales has grown three to six times faster than total retail, even though it still maintains a smaller share of the overall market. E-commerce's share will continue to grow, he said, as more people become more comfortable doing their shopping online.

I have to admit, I have found myself doing more "window shopping" online these days, especially after a friend pointed me to this new site, called ShopItToMe.com. However, I've found that I usually end up in the brick-and-mortar stores anyway to exchange or return something, and I inevitably spend more money than I'd planned.

By Kim Hart  |  May 19, 2008; 3:10 PM ET  | Category:  Kim Hart
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