Online spending on cosmetics increases by more than 30 per cent
but are continuing to grow well in excess of average market rates.
While the total market passed the $100m mark just three years ago,
this year it is set to top $200m.
In a study that took into account 174 online retailers, Forrester Research says that 2006 online sales are expected to rise 20 per cent on last year's total, to reach $211.4m. This figure also includes travel, but breaking it down to the FMCG category, it represents $138m in sales, a rise of 28 per cent on the previous year. The research group suggests that computer hardware and software will lead the way with $16.8m worth of sales, while auto parts comes in second with $15.9m and apparel and footwear comes in third with $13.8bn. Although cosmetics and fragrances are considerably behind other retail categories Forrester says that it will see some of the biggest gains in the segment, predicting that this year growth will be in excess of 30 per cent, rising from $600m in 2005 to reach $800m by the end of 2006. This shows that growth should remain steady for the category, as between 2004 and 2005, it grew by 38 per cent. This is due partly to big increases in the number of online sites selling fragrances and cosmetics, as well as growing confidence amongst consumers about making such purchases over the internet. Big players upping their online presence over the course of the last year have included direct sales companies such as Avon and Mary Kaye, as well as leading retailers and brands such as Amazon, The Body Shop and Natura. The study finds that retailers are increasingly relying on internet sales as a new growth channel. This means that now most have consistent pricing in line with other retail channels, as well as nearly half providing the opportunity for customers to buy and redeem gift vouchers on line. Additionally, Forrester also points out that a third of companies give customers the ability to accrue loyalty program points across channels, while a few also offer in-store product information online. "By encouraging different channels to work together, instead of in isolation, everybody wins," said Scott Silverman, executive director of Shop.org, which combined with Forrester to compile the report. "Retailers have been focusing on integrating their websites and stores to better serve their customers, which is paying off for companies in the form of higher sales." The study also showed that the internet can provide retailers with new customer opportunities as 38 per cent of online customers are reported to be completely new to a company's business. However, there is one challenge that remains to be overcome – ensuring consumers of the safety and security of making purchases over the internet. Many individuals are still hesitant about giving out personal details over the internet, which means that effective security procedures must be in place to provide necessary reassurance. Procedures include card verification value (CVV), check out codes and secure payment schemes such as PayPal. Looking to the future, the report, entitled The 2006 State of Retailing Online, concludes that many retailers are currently implementing large-scale studies and planning for online retail ventures that are expected to be launched within the next two years. "Retailers spent the first decade of eCommerce scrambling to react to and learn about the Internet," said Carrie Johnson, lead author of the report and research director, vice president at Forrester Research. "Companies are now able to take a step back and are busy planning strategies and prioritizing technology investment for the long term. As a result of these efforts, the next five to ten years of online retail will be even more competitive and more innovative than in the past."