Online Sales and the Economic Environment: Q2 Update

News regarding the economic situation continues to be relatively gloomy and has been reflected in the Q2 results that offline retailers have been reporting. For example JC Penny reported Q2 comp store sales declined 4.3% versus last year, Abercrombie and Fitch Q2 comp store sales were also down by 11% versus last year.

Wal-Mart US (+4.6% w/o fuel increase versus Q2 2007, in contrast to a 1.2% increase for Q2 2007 versus Q2 2006) continues to do well on the strength of its overall low price positioning and those product lines that contain necessities rather than discretionary items. This performance shows a continued trend of consumers trading away from mid-market stores down to off-price sellers.

Online sellers like Amazon (US net revenue +35% versus a year ago); Overstock (over 20% growth in gross bookings) and eBay (WW GMV +8%) continue to post healthy increases supporting the notion that online continues to be strong. However, online sellers are beginning to lower expectations for the second half of the year in spite of their success thus far.

In contrast to the strong online performance by some of the top retailers, the census bureau's Q2 ecommerce sales increase is posted at 9.5% versus Q2 2007 - the smallest increase ever and a 22% increase for Q2 2007 versus 2006.

The slightly positive effect of the economic stimulus checks is pretty much played through now and will not have an effect on the coming months.

The prolonged nature of the economic slowdown and increasing consumer prices (e.g. gas, food), with no real relief in site this year, are beginning to wear on the online consumers. Thus, we believe that the overall online growth rate for 2008 may be slightly softer than Jupiter originally projected.

By Patti Freeman Evans & Vikram Sehgal