MEASURING THE DIGITAL WORLD
State of the U.S. Online Retail Economy: Q3 2008 Gian Fulgoni Chairman comScore, Inc.
November 6, 2008
State of the Retail Economy Presented by Gian Fulgoni
Gian M. Fulgoni ■ Co-founder and Chairman of comScore, Inc. ■ Prior CEO of Information Resources, Inc. (IRI), a leading provider of information to the consumer packaged goods industry. ■ Recipient of numerous industry awards: The Chicago Area Entrepreneurship Hall of Fame, Twice Illinois Entrepreneur of the Year, the Wall Street Transcript Award, 2008 E&Y Entrepreneur of the Year. ■ Master’s degree in Marketing and a B.Sc. in Physics.
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Data sourced from comScore’s global panel of 2MM Internet users
360° ° View of Consumer Behavior
Web Visiting and Viewing
Analysis Parameters
Commerce on U.S. Sites Behavioral activity through September 2008
Demographics Life Stages
Online Transactions
Survey issued in October 2008, n = 1064 Consumer Measurements: •Visiting •Buying (incl. product categories) •Demographics •Attitudes •Search
Streaming Video
Search Behavior
Media Exposure
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Retailer Views: •Multi-Channel vs. Pure Play •Retailer Segments
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Consumer confidence plunged to an all-time low in October as the Wall Street credit crisis battered an already bruised economy.
"The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence” -Lynn Franco, Director of the Conference Board Consumer Research Center
“Any remaining shred of confidence consumers had in the U.S. economy was torched this month.” -Kelly Evans, WSJ Blog
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Even Stone Crabs are Feeling the Pinch...
The 2008-09 stone crab season is set to open Wednesday, but a chaotic economy has many
80%
commercial fisherman concerned about demand for the
74%
Florida seafood delicacy. 67%
Fisherman are confident supplies will be good, but sales of the luxury cuisine are uncertain, said Gary Graves, vice president of Keys Fisheries, one of the largest processors of claws in the state. “We expect to have plenty of fresh crabs, but we don’t know how much people have to spend.” Proprietary and Confidential Do not distribute without written permission from comScore
Under $50k
$50k-$99k
$100k+
Q: Are you cutting back on your spending due to concerns about the economy? Source: comScore Survey October 2008
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Consumers faced much higher fuel and food prices in September of 2008 relative to the same period last year
Percent Change in Prices Versus Last Year – September of 2008 Source: U.S. Department of Labor
31.8%
6.0%
4.9%
Total
Motor Fuel (gas) Food & Beverages
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4.5%
Food Service
2.5% All Items Less Food & Energy
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Fuel prices have soared relative to last year
Percent Changes in Price versus Last Year Source: U.S. Department of Labor
40%
38%
36%
33%
35%
32%
30% 25%
21%
21%
20%
Motor Fuel (Gas)
15%
Food & Beverage
10% 5%
5%
5%
6%
6%
6%
Apr 08
May 08
June 08
July 08
Aug 08
Sep 08
5% 0%
Oil prices dropped by 22% per barrel from September to October, causing October gas prices to be 26% higher than in 2007 and promising some much needed boost to consumers’ spending power
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In 2008, inflation adjusted retail sales (incl. auto) have been below year ago levels
Year over Year Change in Retail Sales: Including Autos Jan
Feb Mar
Apr May Jun
Jul
Aug Sep
5%
Including Autos
3%
0%
-3%
-5%
Year over Year Change in Retail Sales: Excluding Autos Jan
Feb Mar
Apr May Jun
Jul
Aug Sep
8% 5% 3% 0% -3% -5%
Source: U.S. Labor Department
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Validation of comScore sales data: comparison of comScore to U.S. Department of Commerce
45 40
Quarterly U.S. eCommerce Sales Estimates Source: comScore & Commerce Department
$Billions
35 30 25 20 15 10 5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Q2 Q3 '01 '01 '01 '01 '02 '02 '02 '02 '03 '03 '03 '03 '04 '04 '04 '04 '05 '05 '05 '05 '06 '06 '06 '06 '07 '07 '07 '07 '08 '08 '08 US Dept of Commerce
comScore
Q3 Government Data Not Available, Release Date: Nov 19th 2008
comScore Estimate = (Total Non-Travel – Event Tickets + Estimated Auction Fees) Excludes travel and event tickets, but includes auction fees and autos Proprietary and Confidential Do not distribute without written permission from comScore
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Year-to-date (through Q3) e-commerce sales posted a 10% gain versus the same period last year
Online Consumer Dollar Sales Growth Excluding Auctions, Autos and Managed Travel ($Billions) Source: comScore
+17%
$200 +20% +22%
Travel
NonTravel
$40
$69
$117 $61
$93 $72
$77
$143
+26% +29%
$51
$42 2002
12%
$158
13%
$66
11%
$92
10%
20%
26%
33%
$30 $53
+10%
$171
26%
2003
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$66
2004
$82 26%
2005
$102
24%
$123
21%
24%
2006
2007
YTD 2008
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Sharper drop in Q3 2008 e-commerce growth than retail sales suggests offline spending is dragging down e-commerce Percent Sales Growth Source: U.S. Commerce Department
30% 25%
24% 23%
22% 19%
20%
22% 20% 19%
19%
eCommerce % Chg. Vs. YA 13%
15% 10%
9%
9%
9% 6%
5%
Q3 Currently Not Available, Government Release Date: Nov 19th 2008
3%
4%
6% 4%
4%
6%
5%
4%
Retail Sales % Chg Vs. YA Retail Sales (excl Autos)
0% Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08
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Online sales growth decelerated through Q2 and Q3 2008
Percent Growth in E-Commerce (Non-Travel Spending) Versus YA Source: comScore
Quarterly Growth
30% 25% 20% 15%
25% 24%
25%
23%
Monthly Growth
30% 23%
25% 19%
23%
13% 17%
10% 5% 0%
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11%
20% 15%
6% 10% 5%
15% 12%
11% 8%
6%
5%
0%
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Online spending growth within the mid-to-lower income households continues to be minimal
Q3 2008 Online Spending vs. YA by Income Segment Source: comScore
Bracket Share of Spending
22% 44% 34% 100%
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At least 80% of consumers in each income segment are more afraid of the economic future than ever before
Consumer Fear Factor Q: To what extent do you agree with the following statement: “I am more afraid about the economic future than ever before.� Somewhat/Strongly Disagree
6%
7%
6%
14%
9%
10%
Neither
29%
36%
43%
Somewhat Agree
51%
47%
42%
Strongly Agree
Under $50k
$50k-$99,999
$100,000+
Source: comScore Survey October 2008 Proprietary and Confidential Do not distribute without written permission from comScore
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A marked shift in consumers’ concern over prices happened in October, with unemployment and financial markets becoming more important issues Top Economic Issue: • Inflation for mid-to-lower income •Financial markets for upper income Q: Based on your situation, which one of the following economic conditions most concerns you? Percent of Respondents Citing Their One Most Important Issue
Source: comScore Surveys – April, July & October 2008
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According consumers, Wall Street takes the most blame; and most don’t want their taxpayer money used to bail out firms
Q: Who do you think deserves the most blame for the situation on Wall Street?
Q: Do you think taxpayer money should be used to assist Wall Street firms?
Other, 5%
22%
Unsure/NA
70%
No
8%
Yes
Not Sure/NA, 14%
Wall Street, 38%
People who Borrowed, 16%
Government, 27%
Source: comScore Survey October 2008 Proprietary and Confidential Do not distribute without written permission from comScore
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Middle age people are very uncomfortable with their level of debt; older people the most comfortable
Consumer Debt Levels: Comfort Level by Age Q: Please indicate your comfort level with your current amount of debt?
34% 43%
45% 54%
39%
Extremely/Very Uncomfortable
58% Neither
14%
27% 21%
27% 23%
19% 47%
39% 30%
18-24
25-34
35% 24%
23%
35-44
45-54
55-64
Extremely/Very Comfortable
65+
Source: comScore Survey October 2008 Proprietary and Confidential Do not distribute without written permission from comScore
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People at the mid and lower income levels are much less at ease with their debt levels yet even nearly a third of high income consumers are uncomfortable Consumer Debt Levels Q: Please indicate your comfort level with your current amount of debt?
29% 45%
Extremely/Very Uncomfortable
56% 27% Neither/NA 20% 21% 45% Extremely/Very Comfortable
35% 23%
Under $50k
$50k-$99,999
$100,000+
Source: comScore Survey October 2008 Proprietary and Confidential Do not distribute without written permission from comScore
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A ray of hope: with the drop in gas prices in October, consumers are marginally less likely to cut back on spending Percent Cutting Back by Income Segment Source: comScore Surveys – April, July and Oct 2008
Under $50K 84%
$51K - $99K
86% 80%
77%
$100K +
81% 74%
72% 66%
April 08
July 08
Oct 08
April 08
July 08
Oct 08
April 08
July 08
67%
Oct 08
Q: Are you cutting back on your spending due to concerns about the economy?
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Shopping less frequently reduces the likelihood of impulse buying among other POS challenges for retailers
Q: Please indicate the items for which you have cut back your spending.
Primary Ways People are Cutting Back on Shopping Expenses Shop Less Frequently
69%
Shopping
57%
Entertainment
48%
Vacation/Travel
51%
Gas and/or Auto
44%
Apparel /Accessories
39%
Music, Movies & Videos
35%
Home Improvement
29%
Health and Beauty
19%
Medical Needs
71%
Only Shop for Necessities
67%
Use Coupons More Often
62%
Reducing Gift Spending
51%
Buying Different Brands (incl. Generic)
51%
Shop Only Sales
43%
Shop at Secondhand Stores
33%
Buying in Bulk (i.e. club stores)
28%
Look Online for Deals
25%
Shop at Different Retailers
25%
Sign up for Loyalty Programs Shop at Auction Sites
Source: comScore Survey October 2008 Proprietary and Confidential Do not distribute without written permission from comScore
22% 14%
Q: Please indicate the ways in which you have cut back your shopping expenses. 20
Consumer Spending Patterns: Retailer Types
Multi-Channel retailers continued to gain market share at the expense of Pure Play retailers
Retailer Dollar Share by Channel Type Source: comScore, Inc.
Pure Play
Multi-Channel
57%
56%
Average Order Value: +8.1% Vs. YA
Average Order Value: -4.6% Vs. YA
43%
44%
Q3 2007
Q3 2008
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Many multi-channel retailer segments posted online sales gains with the exception of Apparel/Shoe/Accessories retailers who posted a slight decline in online sales
Multi-Channel Retailers: Online Q3 2008 Sales Change Versus Yr Ago
Department Stores
7%
Mass
Consumer Electronics
6%
2%
Apparel/Shoes/Accessories -3%
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Several top categories experienced sales declines in Q3 2008 when compared to last year Q3 2008 Performance Versus Year Ago
60%
VIDEO GAMES, CONSOLES & ACCESSORIES
40%
SPORT & FITNESS
26%
FURNITURE, HOME & GARDEN
18%
EVENT TICKETS
14%
FLOWERS, GIFT & GREETINGS
1%
CONSUMER ELECTRONICS (x PC)
0%
COMPUTERS / PERIPHERALS / PDAs APPAREL & ACCESSORIES
-2%
TOYS & HOBBIES
-3% -11%
JEWELRY & WATCHES
-17%
BOOKS & MAGAZINES MUSIC, MOVIES & VIDEOS*
-29%
-40% -30% -20% -10%
0%
10%
20%
30%
40%
50%
60%
70%
* Does not include digital downloads
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It appears that the classifieds market is also increasingly important during these tighter economic times
Average Monthly Unique Visitors by Quarter (Millions) 60
50
45 41
40
47
50
52
Classifieds
43
37
35 31
30
21 20
+16%
24
24
Q3 07
Q4 07
+48%
Craigs List
27
16
10
-
Q1 07
Q2 07
Q1 08
Q2 08
Q3 08
Source: comScore Media Metrix Proprietary and Confidential Do not distribute without written permission from comScore
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Consumer Search and Referral Activity
Fairly flat visitation and less overall time spent suggests that only those with a specific purchase intent are utilizing Comparison Shopping Engines Comparison Shopping Engine Usage Source: comScore Media Metrix
Average Monthly Unique Visitors (MM)
Average Monthly Minutes Spent (MM)
318 294 -7% +2%
63.7
65.5 +3%
Q3 2007
Q3 2008
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Q3 2007
Q3 2008
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Referred traffic drove a greater proportion of online revenues in Q3 of 2008 compared to last year
Referred and Non-Referred Consumer Buying: Q3 2007 Vs. Q3 2008 Source: comScore, Inc.
75%
73%
Non-Referred Dollars
73%
70%
Referred Dollars
25%
27%
27%
30%
Q2 07
Q2 08
Q3 07
Q3 08
Top Three Shopper Referral Vehicles: Search, Email and Comparison Shopping
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Despite flat usage, Comparison Shopping sites increased their share of referred sales for retailers in Q3 of 2008
% of Referral Sources Buying Source: comScore, Inc.
52.7% 48.9%
11.3%
11.0% 5.9% 2.3%
Search/Navigation
Q3 2007
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Comparison Shopping
Q3 2008
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The number of U.S. searches has grown steadily, with Google outpacing the other engines
Total U.S. Searches (MM) Source: comScore, Inc.
12,000
10,000
Total
In Millions
8,000
6,000
Searches % Chg Vs YA
Jul
Aug
Sep
Total
21%
19%
26%
35%
31%
40%
Non-Google
3%
2%
7%
4,000
Non-Google 2,000
-
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2008 Holiday Season Outlook
Twice as many consumers said they would start shopping earlier this year than said they would start later
Q: When do you plan to start your holiday shopping? Source: comScore Survey October 2008
51%
23% 14%
12%
Earlier than normal
About the same time
Later than normal
Not sure
The Thanksgiving to Christmas shopping season is five days shorter this year.
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Consumer sentiment suggests that spending will decline within households earning less than $100,000
Q: Do you anticipate your spending for the winter holiday season to be‌� Source: comScore Survey October 2008
Spend Less 43% 59%
62% 3%
2%
Not Sure
1% 54%
39%
37%
Under $50k
$50k-$99,999
Spend More/Same
$100,000+
Compared to last year, at least 55% of all people in each segment are more sensitive to spending this holiday season, while only 6% are less sensitive.
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Lower spending this holiday season can be attributed to higher gas, food and energy prices and less spending power
Q: Do you anticipate your spending for the winter holiday season to be‌ 58%
Spend Less
40%
Spend more/Same
2%
Not sure
Q: Why are you planning to spend less this winter holiday season? Source: comScore Survey October 2008
High gas, food and/or energy prices
68%
I have less money
62%
I am worried about the economy
51%
I have more expenses
My family has agreed to set limits on spending/spend less
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41%
28%
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Nearly 70% of all people plan to save this holiday season by purchasing fewer and/or less expensive gifts
Q: Do you anticipate your spending for the winter holiday season to be‌ 58%
Spend Less
40%
Spend more/Same
2%
Not sure
The top three online cost saving methods: Free Shipping Sale Items Not Paying Tax
Q: How do you plan to save on holiday spending this year? Source: comScore Survey October 2008
Buy fewer gifts
73%
Buy less expensive gifts
69%
Use coupons
37%
Shop online to take advantage of free shipping, no tax, etc.
37%
Spend more time researching deals online
34%
Shop early in the season to take advantage of discounts
32%
Spend more time searching for deals in stores
32%
Shop later to take advantage of price reductions
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21%
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All income segments are turning to coupon sites more so than they did last year, most notably the higher income group More than 25 million Americans visited a coupon site in Q3 2008, an increase of 26% versus Q2 2008
Coupon Sites Average Monthly Unique Visitor Growth: Q3 2008 Vs. Yr Ago Source: comScore, Inc.
37%
25% 16%
Under $39k
$40k - $99,999
$100,000+
Web Search on Coupon Terms % Change
Searchers
Searches
Sept '07 Vs. Jan '07
100%
107%
Sept '08 Vs. Jan '08
45%
41%
Source: comScore Marketer Proprietary and Confidential Do not distribute without written permission from comScore
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Gift cards were chosen as the top gift item followed by practical items/necessities
Q: What do you plan to buy as gifts for friends, relatives and others this holiday season? Source: comScore Survey October 2008
Gift Cards
49%
Practical gifts/necessities
35%
Books, music or movies
30%
Apparel & Accessories
28%
Not Sure
24%
Health & Beauty products
14%
Electronics
12%
Jewelry & Watches
9%
Home & Garden items
8%
Other
8%
Computers & Hardware
Q: How are you planning to pay for gifts this holiday season?
5%
Appliances
3%
Vacations/Trips
2%
Luxury Items
2%
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Other, 2% Not Sure, 7% Credit Card Only, 14%
Take out a loan, 1%
Cash, Debit or Check, 49%
Cash & Credit Card, 28%
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If an online retailer charged for shipping, three out of four people said they would seek out another site that offered free delivery
Q: If an online retailer charged you for shipping, would you‌ Source: comScore Survey October 2008
Find a retailer online that offers free shipping
72%
Opt for in-store pick up if available
46%
Buy it offline
Not Sure
Other
40%
9%
4%
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Industry Commentary
"Retailers are going into this holiday season with their eyes wide open, knowing that savings and promotions will be the main incentive for shoppers." – Tracy Mullin, NRF President & CEO.
Sales & Deals "We're seeing holiday decorations come out earlier, holiday advertising come out earlier and promotions earlier than usual….[Retailers are] doing what they can to get consumers to shop.” – Erin Hershkowitz, International Council of Shopping Center.
Internet Usage
Consumer Behaviors
“What we’re seeing at Google is that the current economic climate continues to impact consumer search and spending behavior, with more and more consumers turning to the web to shop.” – John Burke, managing director of industry development & marketing, Google Inc. "Consumers are clearly feeling the effects of a perfect storm of challenging economic events such as the mortgage crisis, stock market volatility, and rising energy costs.” – Lisa Klauser, a VP at Unilever's New Jersey operations. “In previous downturns…we have often seen shopping as therapy…[Today] people aren’t shopping to feel better. They actually are not shopping to feel better.” – Todd Lavieri, CEO of Archstone Consulting.
Timing
“The state of the economy, coupled with one less weekend to lure in holiday shoppers this year, will result in retailers doing anything and everything they can to start the unofficial shopping season before Thanksgiving.” – Jon Hurst, Retailer Association of Massachusetts.
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Some Closing Thoughts
Some Closing Thoughts ■ Consumers’ spending power continues to be limited by concerns about rising prices, especially among mid-to-lower income households, but even within upper income segment the crisis in the financial markets has crimped their spending intentions ■ Online spending growth is likely to be heavily reliant on the $100,000 income bracket that still has sufficient disposable income ■ A continued drop in oil prices is a ray of hope in helping stymie the increase in gas and food prices and boosting spending power for all segments ■ Consumers say they will start shopping earlier this year – presumably to take advantage of early season offers and to gain some flexibility in spending ■ With prices being uppermost in consumers’ minds, smart retailers will do everything possible to meet their needs: – Free shipping is a game changer – Cost containment and inventory control are mandatory – Deals and special offers needed to entice shoppers, before and throughout the season
■ Consumer spending will be constrained during this holiday season, with comScore forecasting e-commerce growth of 6% to 10% versus year ago Proprietary and Confidential Do not distribute without written permission from comScore
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