(Washington and Chicago; June 12, 2002; PRNewswire) In 2001, fully 56 percent of retailers reported profitable online operations, up from 43 percent in 2000, according to "The State of Retailing Online 5.0," a Shop.org annual study conducted by The Boston Consulting Group with market-sizing data supplied by Forrester Research.(1)

Further profitability and growth is anticipated in 2002 due to continued growth in consumer spending online and additional cost efficiencies. According to the report, extracts of which were released today, shoppers spent $51.3 billion online in 2001, up 21 percent from the year before. In 2002, consumer spending online is expected to increase 41 percent to $72.1 billion.

The aggregate U.S. online retail market also moved closer to profitability last year. Operating margins rose from a net loss of 15 percent in 2000 to a loss of 6 percent in 2001, with break-even expected this year. Catalog-based retailers continued to have the most success, with positive margins of 6 percent. Store-based and Web-based retailers posted aggregate losses, though both groups showed year-over-year improvement and are trending toward break even.

Online penetration by product category also grew. Out of 15 categories studied, sales in seven, including computer hardware and software, books, music and video, toys, and consumer electronics, represented more than 5 percent of all retail sales for those respective categories, with penetration in some categories as high as 17 percent.

"Consumer adoption of the online channel has reached critical mass, and retailers have been able to respond by turning this trend into profits. This is all the more remarkable in a year like 2001, which experienced a weakened economy," said Elaine Rubin, chairman of Shop.org. "Multi-channel retailers, who are driving much of this profitability, are achieving this goal by creating shopping experiences that take advantage of multiple channels and contact points."

Significant drivers of improved profitability in 2001 were increased consumer spending online and continued operational performance improvements in a variety of areas such as increased marketing efficiency, an increase in the number of repeat online buyers, and tighter expense control. Marketing efficiency increased significantly, resulting in marketing costs per order falling to $12 in 2001 from $20 in 2000 and customer acquisition costs dropping to $14 in 2001 from $29 in 2000. Repeat buyers account for over half of sales, with 53 percent of revenue in 2001, up from 40 percent in 2000.

"In 2002, we will see continued growth in profitability," said Michael Silverstein, senior vice president and global leader of BCG's Consumer practice. "Many retailers have achieved scale and made focused investments in infrastructure. 2002 is likely to be the beginning of a profitable era in online retailing. Not only will retailers continue to improve marketing effectiveness, but they will also have opportunities to realize efficiencies in the supply chain and product fulfillment. We will also see strong top-line growth, especially from store-based and catalog-based retailers as they take customer relationship management and targeted marketing to the next level of effectiveness."

"For multi-channel retailers, it is now more important than ever to ensure that the online businesses are integrated with the store and catalog businesses," said Peter Stanger, a BCG vice president and BCG's leader of the Shop.org study. "It is by effectively analyzing the customer information across these channels that multi-channel retailers can realize a significant increase in share of wallet."

About "The State of Retailing Online 5.0"

Based on data from more than 100 retailers who participated in a detailed survey, "The State of Retailing Online 5.0" explores the opportunities and challenges facing retailers selling merchandise on the Web, including store- based, catalog-based, and Web-only retailers. Released today are extracts from the report detailing sizing and a number of high-level findings from the survey. A report with detailed benchmarks from the survey will be available shortly for sale by Shop.org. The full "The State of Retailing Online 5.0" study incorporating insights from retailer interviews will be available in July.

About Shop.org

Shop.org is the association for retailers online. It's where the best retail minds come together to gain the insight, knowledge, and intelligence to make smarter, more informed decisions in the evolving world of the Internet and multi-channel retailing. Founded in 1996, Shop.org became a division of the National Retail Federation in January 2001. The association's membership includes interactive executives from store-based retailers, catalog-based retailers, Web-based retailers, and retail solution providers.

About The Boston Consulting Group (BCG)

The Boston Consulting Group is a general management consulting firm widely regarded as the global leader in business strategy. Since 1963, BCG has worked with companies in every major industry and global market to develop and implement strategies for competitive success. The firm has 54 offices in 34 countries around the world. More information can be found on the company's Web site at http://www.bcg.com .

About Forrester Research

Forrester Research is a leading emerging-technology research firm providing data and analysis that defines the impact of technology change on business. Forrester's WholeView(TM) Research, Strategic Services, and Events help Global 3,500 clients understand how technology change affects their customers, strategy, and technology investment. Established in 1983, Forrester is headquartered in Cambridge, Mass. For additional information, visit http://www.forrester.com .

*(1) The market sizing numbers used for this year's report were developed by Forrester Research. These estimates were developed using a different methodology than in previous years' reports, combining the historical data source of retailer-level 'supplier' data with new, consumer-level 'demand' data provided by comScore Networks. The Forrester market size estimate for 2000 reported today differs from last year's reported market size by less than one percent.