A Special Report brought to you by THE MEDIACENTER

The Growth of E-Commerce, Q1 2004–Q1 2016 A Brief History of E-Commerce Quarter/Year Total % of All Retail Sales Q1 2004 $17.10 billion 2.00% As with most technological advancements, we are quick Q1 2006 $26.88 billion 2.80% to attribute major milestones to a single individual at an Q1 2008 $36.01 billion 3.60% exact moment. Yes, the Wright brothers were the first to achieve sustained, controlled flight, but they would have Q1 2010 $39.43 billion 4.20% never lifted off the sands of Kitty Hawk without many Q1 2012 $54.96 billion 5.10% individuals experimenting with the concept of flight during Q1 2014 $70.30 billion 6.20% the past centuries. Q1 2016 $92.80 billion 7.80% Such is the case with the history of e-commerce. Although YCharts (US Census Bureau), June 2016 the birth of the Internet existed in its earliest form during the 1970’s, it wasn’t until 1998 that security protocols were Despite the small percentage that e-commerce has developed that would allow for safe financial transactions captured of all retail sales, its influence and potential is online. Initially, e-commerce was actually business-to- much greater than its 7.80% share represents. It delivers business transactions totaling approximately $700 billion consumer convenience that is difficult, if not impossible, to during 2001, an amount that retail e-commerce in the US match and is the major disruptor technology of the entire hasn’t even come close to achieving. retail landscape.

According to the US Census Bureau, since the end of Q1 The purpose of this Special Report from THE MEDIACENTER 2004, US e-commerce sales have increased from $17.10 is to expand your knowledge and understanding of billion to $92.80 billion for Q1 2016, a 447% increase during e-commerce, so you can help your clients maintain the a mere 12 years. The Q1 2016 total was just 7.80% of all vitality and viability of their brick-and-mortar presence as retail sales of $1.184 trillion. they also benefit from all e-commerce has to offer them and their customers. www.mediacenteronline.com pg. 2

The Bigger Picture Amazon: The Giant of E-Commerce To say Amazon dominates e-commerce would be an Forrester estimates total US online retail sales will reach understatement. According to Forrester, Amazon generated $372.5 billion during 2016, and then increase 42.4% by $23 billion in US e-commerce sales during 2015, which was 2020, to a total of $530.6 billion. Forrester’s “bigger picture” 60% of the total increase in US online sales. of e-commerce also has Q1 2016 online retail sales accounting for 11.1% of all retail sales, compared to the US “Exploring the Amazon,” a July 2016 New Media Insights Census Bureau’s 7.80%. (NOTE: Because the US Census Report from THE MEDIACENTER, reveals many of the Bureau and Forrester Research define retail e-commerce reasons Amazon is the giant of e-commerce, but its differently, Forrester’s estimated total sales is much larger influence also extends to the warehouse industry. than the Census Bureau’s.) Since Q2 2015, rental rates for prime warehouse space have US Online Retail Sales, 2015–2020 increased 9.9% for the entire US and double-digits in many large metro areas. Green Street Advisors estimates that Year Total Total Online Buyers e-commerce is driving 20% of the new demand. Amazon 2015 $338.1 billion 185.5 million has turned the supply-chain segment of the retail industry 2016 $372.5 billion 189.7 million upside down. Traditionally, it has been considered a cost of doing business, but Amazon is using its rapid expansion 2017 $409.8 billion 193.7 million of distribution centers as a growth advantage that no other 2018 $448.5 billion 197.8 million retailers can currently match. 2019 $488.9 billion 202.0 million Jeramey Lende / Shutterstock.com 2020 $530.6 billion 206.2 million Forrester Research, Q4 2015

Forrester found that retailers consider online marketing and merchandising major priorities for 2016 and the development of omnichannel services, such as ship-from-store and in- store pickup programs, have much to do with their online sales success. That being said, many retailers have not advanced the use of the mobile channel for e-commerce, as 78% of consumers are not pleased with download times and screen-size limitations. www.mediacenteronline.com pg. 3

How Device Ownership Affects Changes in Shopping Habits E-Commerce by Device During Past 12 Months More Less No Device According to Bronto Software’s most recent survey on Frequently Frequently Difference consumer device ownership, American adults owned Laptop 57% 10% 32% an average of 2.9 devices, with the laptop as the most prevalent. Approximately 90% of adults, 18–24 and Smartphone 64% 8.5% 25% 25–34, either owned or had access to a laptop, closely Desktop 57% 10% 31% followed by adults, 35–44, at 79%, and those 55+ at Tablet 60% 10% 26% approximately 72%. Wearable 79% 3% 11% The following table presents a quite different picture when Physical Store 29% 30% 40.5% comparing device ownership and shopping and purchasing Bronto Software, 2016 habits. Overall, the Bronto survey discovered that consumers used approximately the same number of devices for One of the most telling takeaway for retailers is that 30% shopping and purchasing, 1.9 and 1.8, respectively. of consumers said they shopped less frequently at brick- and-mortar stores, but 29% said they shopped more frequently. These nearly equal results are attributed to age Device Ownership and Shopping and and income differences. Purchasing Habits, 2016 Device Own Shop Purchase Laptop 80% 62% 61% ■■ 43% of adults, 25–34, and all adults with household incomes of less than $75,000 shopped Smartphone 75% 41% 38% more frequently at brick-and-mortar stores. Desktop 67% 49.5% 49% Tablet 59% 28% 23% ■■ Adults, 18–24, and those with household incomes of $100,000 or more shopped less frequently in Wearable 12% 4% 4% physical stores. Bronto Software, 2016

The change in shopping habits by device during the past 12 months (early 2015 compared to early 2016) reveals some A comparison of devices used for making purchases by age interesting takeaways. is also very insightful, as, not surprisingly, younger adults, 18–44, are more likely to use laptops and smartphones and older adults, 45+, make more purchases on desktops.

Devices Used for Purchases by Age, 2016 Device 18–24 25–34 35–44 45–54 55–64 65+ Laptop 74% 76% 70% 58% 53% 52% Smartphone 63% 61% 58% 30% 19% 8% Desktop 38% 41% 42% 53% 52% 61% Tablet 29% 39% 41% 19% 15% 8% Wearable 6% 10% 8% 3% 0% 0% Bronto Software, 2016 www.mediacenteronline.com pg. 4

E-Commerce Consumer Insights

According to King Retail Solutions’ Winter 2015 consumer survey, 67% of US adult smartphone owners had at least one shopping app on their phone. The results support the common knowledge that Millennials have the largest smartphone penetration, 83%, as well as the largest penetration of shopping apps.

Smartphone Shopping Apps by Gender and Age Group, Winter 2015 Metric All Adults Men Women Millennials Gen Xers Baby Boomers No smartphone 24% 29% 20% 17% 23% 32% Smartphone, but no shopping apps 25% 25% 16% 22% 25% 29% 1 shopping app 14% 12% 18% 18% 12.5% 12% 2 shopping apps 14% 12% 19% 19% 13% 11% 3 shopping apps 9% 9% 12% 10% 10% 6.5% 4 shopping apps 4% 3% 4% 5% 4% 3% 5+ shopping apps 10% 10% 11% 9% 12.5% 6.5% King Retail Solutions, Winter 2015

The survey also Use of Shopping-Related Apps on Smartphones, Winter 2015 found that more of Baby Use All Adults Men Women Millennials Gen Xers the consumers in the Boomers categories above had Store shopping only 14% 12% 16% 12% 15% 17% an e-retailer app on their smartphone, with men Online shopping only 38% 43% 35% 40% 36% 39% the most at 51% and Both 47% 45% 49% 48% 49% 44% women the least at 37%. King Retail Solutions, Winter 2015

In addition, all categories of consumers said they Preference of Goods for “Buy Online/Pick Up In-Store” Option, Winter 2015 used the shopping- Fresh Prepared Demographic Apparel Electronics Groceries Housewares related app on their Meals phones both for All adults 57% 80% 28% 28% 59% shopping in a store as well as shopping online Men 47% 87% 27% 28% 58% than either individually. Women 64% 75% 28% 27% 60% Millennials 62% 80% 33% 31% 54% During the 12 months prior to the survey, 40% Generation Xers 63% 78% 28% 27% 64% of all adult participants Baby Boomers 42% 81% 19% 23% 60% said they used the “buy People with kids 60% 81% 27% 24% 64% online/pick up in-store” option, but it was even People without kids 55% 79% 28% 30% 56% higher among people Rural 61% 82% 26% 26% 55% with children, 48%; Urban 60% 80% 30% 30% 49% men, 45%; and Baby Suburban 54% 79% 27% 27% 65% Boomers, 45%. King Retail Solutions, Winter 2015 www.mediacenteronline.com pg. 5

Buying Fashion Online A Big Number for Back-to-School E-Commerce Sales As the last table on page 4 shows, all categories of eMarketer projects that total retail sales during the 2016 consumers were within a few percentage points in terms back-to-school season (July and August) will increase 2.6%, of their preference for buying apparel online and picking up or $828.81 billion from 2014’s $807.50 billion; however retail their orders in-store. Yotpo, a reviews and marketing solution e-commerce sales will increase more than 15% for the fifth company, is able to provide some significant insights about consecutive year, totaling $65.42 billion. fashion shopping online since 3,000 e-commerce fashion stores use its product, which constitutes more than 12 million purchases and more than $838 million spent. US Retail E-Commerce Back-to-School Season Sales, 2015 & 2016 From its enormous database, Yotpo found that the average Metric 2015 2016 order value (AOV) during the first part of 2016 for all online fashion stores was $97. Interestingly, the stores with the Total sales $56.74 B $65.42 B fewest orders per month, from 1 to 1,000, had the highest % Change +15.2% +15.3% AOV, or $108, while those with the most orders per month, % of full year retail 16.5% 16.5% 10,000+, had the lowest AOV, or $49. e-commerce sales % of Q3 retail There was very little difference in the average number of 70.0% 69.7% e-commerce sales products per order by the amount of monthly orders, with % of total retail the average at 1.74 products per order. 7.0% 7.9% back-to-school sales Helping online fashion stores to maximize the value of their eMarketer, June 2016 reviews is a major portion of Yotpo’s business model. It’s interesting to discover that according to its survey 41.5% of shoppers said they don’t purchase from new brands online because of a lack of reviews.

Average Number of Fashion Products Per Order, 2016 Monthly Orders # of Products 1–1,000 1.87 1,001–5,000 1.78 5,001–10,000 1.76 10,000+ 1.71 Yotpo, 2016 www.mediacenteronline.com pg. 6

Buying Groceries Online Who Is the Online Grocery Shopper? Of all the major retail sectors, groceries has been the The Unata/Environics study revealed the following profile of slowest to experience growth in online shopping, which is online grocery shoppers. evident in the low preference percentages for the two food categories in the King Retail Solutions’ table on page 4. ■■ 18% of men are more likely to shop for groceries A December 2015 survey and report from Unata and online during 2016, compared to 15% for women. Environics shows, however, that 2016 may be the breakout year for online grocery shopping. Although only 8% of survey ■■ In terms of household income, those in the participants said they made an online grocery purchase $100,000 category are 50% more likely to have during 2015, more than twice, or 17%, said they were “very shopped online during the past compared to likely” or “somewhat likely” to do so during 2016. the average. During 2016, however, consumers with a household income of $50,000 to Of even greater significance, 93% of those who purchased $100,000 will be the fastest growing segment of groceries online during 2015 were likely to purchase online online grocery shoppers. during 2016, and 72% said “very likely,” which translates to an excellent retention rate.

During 2015, online grocery shoppers were not deterred by Likelihood of Shopping Online for Groceries the fact that 39% of their primary grocer did not provide an During 2016 by Age and Children in the Family, online option, since 13% of them said they were still likely to buy groceries online during 2016. As online grocery December 2015 shopping grows in popularity, those groceries without the Somewhat Very Metric service are apt to lose customers who may not return. Likely Likely Adults, 18–35 28% 3% Online Grocery Shoppers’ Willingness to Switch Adults, 35–54 12% 8% Groceries for a Better Shopping Experience, Adults, 55+ 7% 2.5% December 2015 Consumers with children 21% NA Somewhat Very Consumers without children 11% NA Metric Likely Likely Unata and Environics, December 2015 Shoppers willing to switch stores 12% 4% Previous online grocery shoppers 36% 28% willing to switch store Unata and Environics, December 2015 www.mediacenteronline.com pg. 7

Responding to the US Retail M-Commerce Sales, 2015–2020 Mobile Shopper Metric 2015 2016 2017 2018 2019 2020 Total eMarketer reports that retail m-commerce $88.53 B $123.13 B $151.11 B $178.27 B $208.58 B $242.08 B m-commerce will increase sales 39.1% during 2016, to % change 56.2% 39.1% 22.7% 18.0% 17.0% 16.1% $123.13 billion, which will % of retail be almost (32%) one-third of e-commerce 26.0% 32.0% 35.0% 37.0% 39.0% 41.0% all retail e-commerce sales. sales The increase through 2020 % of total will slow, but m-commerce 1.9% 2.6% 3.0% 3.5% 4.0% 4.5% will still generate double- retail sales digit growth. eMarketer, May 2016

A Q4 2015 study from Nielsen found that being able to see US retailers are realizing that a strong m-commerce product pictures was the #1 factor for US mobile shoppers presence is mandatory. More of them are also recognizing on either a smartphone or tablet. the challenges they face and the major priorities to respond to their current and future customers. What’s Important to US Mobile Shoppers, Q4 2015 Important Factor Smartphone Tablet US Retailers’ Top M-Commerce Challenges and See product pictures 62% 63% Priorities, March 2016 Using the mobile-friendly version 48% 35% of a Website Challenge/Priority Percent Read product reviews 44% 46% Consumers expect to use mobile as part of Product descriptions 44% 45% their shopping experience, and we need to 64% be there. See/Compare prices 44% 42% Our competitors have raised the bar on Website security 31% 36% 48% mobile and we need to respond. Size of Website text/links 17% 25% We are seeing significant traffic from mobile An app for the specific retailer 10% 9% 44% sources and need to respond. eMarketer, May 2016 We are worried about consumer privacy 35% concerns over how retailers collect and use data.

Understanding and accommodating how different customer segments engage with us 33% via mobile

Consumer adoption of mobile technology is 28% moving too quickly, and we struggle to respond.

We do not know what the customer perceives 5% as valuable in a mobile offering.

We have difficulty coordinating with other channels to create a seamless cross- 23% channel experience. eMarketer (Retail Systems Research), May 2016 www.mediacenteronline.com pg. 8

Now is the time for retailers to prepare for this year’s holiday Preparing for 2016 E-Commerce shopping season and the following strategies could help Holiday Shopping them to make products more accessible, improve the consumer experience, shorten delivery times and maximize During the 2015 holiday season, total e-commerce sales the number of delighted customers. were $69.08 billion, or a 13.0% increase over 2014. Compare this to total 2015 holiday sales of $626.1 billion, or 1. Offer more electronic payment options, such as a 3% increase from 2014, according to the National Retail the relatively new payment app, Venmo, to make Federation. The 3% increase was better than 2012 and the checkout process easier and quicker and to be 2013, but 36% less than 2014’s 4.1% increase. one step ahead of the competition.

US E-Commerce Holiday Sales by Device, 2. Survey customers to determine if they would like a subscription-based purchase option for the core 2015 vs. 2014 products they are more likely to buy regularly. Device 2014 2015 % Change Not only will they receive the products they need automatically, but also retailers will create a steady Total e-commerce $61.29 B $69.08 B +13.0% revenue stream with less effort. Desktop $53.31 B $56.43 B +6.0% e-commerce* 3. Guarantee delivery times of 48 to 72 hours Mobile in exchange for more customer information $7.98 B $12.65 B +59% e-commerce to enhance a retailer’s customer database, Mobile’s share 13% 18% registering for a company newsletter or social media engagement or signing up for a comScore, January 2016 subscription-based purchase option. *from home and work desktop computers 4. Equip salespeople with tablets and/or create freestanding tablet-based kiosks. Train salespeople During early 2016, eMarketer forecasted an 13.3% to use these devices to show customers products increase in e-commerce sales for the 2016 holiday that may not be displayed in the store, but are on shopping season, which is essentially the same as its their shopping list. Offer free shipping or in-store 2015 final increase of 13.4%. coupon for these purchases, so customers don’t shop elsewhere.

Sources: E Commerce-Land Website, 6/16; YCharts Website, 6/16; US Census Bureau Website, 6/16; MediaPost Website, 6/16; Bloomberg Website, 6/16; comScore Website, 6/16; National Retail Federation Website, 6/16; Bronto Software Website, 6/16; Kings Retail Solutions Website, 6/16; Yotpo Website, 6/16; eMarketer Website, 6/16; Yesmail Website, 6/16. THE MEDIACENTER 7000 Kennedy Blvd. East, M-9 Updated: June 2016 Guttenberg, NJ 07093 Tel:866.921.1026 © 2016 THE MEDIACENTER. All rights reserved. www.mediacenteronline.com