The Internet Commerce Briefing

Business-to-consumer e-commerce report

The Intermarket Group L.P.
www.intermarketgroup.com

Business-to-Consumer E-Commerce Report

This document is intended for electronic delivery

Copyright  2001 by The Intermarket Group, L.P. All rights reserved. The entire contents of this publication are copyrighted by The Intermarket Group, L.P. and may not be translated, reproduced, stored in another retrieval system, posted on a website, or transmitted in any form or by any means, beyond that permitted by your Customer License Agreement and by Sections 107 and 108 of the 1976 United States Copyright Act, without prior written consent from the copyright owner. The charts, tables and data provided in this report are all sourced from publicly-available information produced by the attributed sources and remain the property of and are copyright by their respective owners. Requests for further information or for reprint permissions should be addressed to: The Intermarket Group, L.P., P.O. Box 500126, San Diego, California 92150-0126, USA. The following uses of this document are strictly prohibited unless otherwise provided for in your Customer License Agreement: • Transmittal via the Internet or any other network • Reproduction for sale or for further distribution • Posting on a website or intranet site All information contained in this publication is believed to be obtained from reliable sources. The publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the authors nor the publisher is engaged in offering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Published December 2001 ISBN No. 1-882113-15-2

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Table Of Contents
Table of Contents ...................................................................... 2 List of Charts and Tables .......................................................... 3 Section I. Section II. The Online Consumer Population........................ 5 Online Consumer Activities.................................14

Section III. E-commerce Market Size and Composition........24 Section IV. Online Merchandising and Customer Service.....43 Section V. Privacy and Security Issues Among Internet Users .........................................59

Section VI. E-commerce and the Holidays............................66 Appendix Data Sources and Contact Information...............93

Other reports in the Internet Commerce Briefing series: Internet Population & Online Demographics Online Advertising & Digital Marketing

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Charts and tables in this report
1.01 Estimated U.S. Population Of Online Buyers 1.02 U.S. Online Buyers As A Share Of Active Internet Users 1.03 U.S. Online Buyers vs. Active Internet Users By Month 1.04 Age Of U.S. Online Buyers 1.05 Age Of U.S. Online Buyers vs. Internet Users 1.06 Penetration Of Purchasing Online By Age Group In The U.S. 1.07 Individual Income Of U.S. Online Buyers 1.08 Education Of U.S. Online Buyers 1.09 Education Of U.S. Online Buyers vs. U.S. Internet Users 1.10 Ethnicity Of U.S. Online Buyers 1.11 Marital Status Of U.S. Online Buyers vs. U.S. Internet Users 1.12 Primary Types Of Online Consumers 1.13 Top Concerns Of Online Consumers By Segment 2.01 How Frequently U.S. Consumers Buy Online 2.02 Number Of Online Purchases Completed 2.03 Number Of Online Purchases By Tenure 2.04 Annual Spending Among Online Buyers By Tenure 2.05 Spending For Online Purchases 2.06 Spending For Online Purchases 2.07 Tenure Of U.S. Online Buyers 2.08 Tenure Of U.S. Online Buyers By Age 2.09 Where U.S. Consumers Shop 2.10 How U.S. Internet Users Use The Web To Shop 2.11 How U.S. Consumers Gather Product Information 2.12 Seven Factors For Success In Online Retailing 2.13 How U.S. Internet Users Learn About Websites 2.14 How U.S. Internet Users Search For Products Online 2.15 How Online Shoppers Get To Websites 2.16 Internet Users Purchasing At The First Site Visited 2.17 Multi-Channel Online Shopping Activities Of U.S. Internet Users 3.01 U.S. Online Retail Sales Estimates (2001) 3.02 Total U.S. Consumer Internet Commerce (1999-2006) 3.03 Total Worldwide Consumer Internet Commerce (2000-2004) 3.04 U.S. Mobile Commerce Revenues (2000-2005) 3.04a U.S. Mobile Commerce Revenues By Type (2005) 3.05 Quarterly Estimated U.S. Online Retail Sales 3.06 Online Retail Sales Share Of Total U.S. Retail Sales 3.07 U.S. Retail Sales By Month (2000/2001) 3.08 U.S. Online Retail Sales By Month (9/2000-9/2001) 3.09 Average U.S. Online Spending Per Household Per Month (2000/2001) 3.10 U.S. Online Buyers By Month (9/2000-9/2001) 3.11 Breakdown Of U.S. Online Retail Spending By Category (2001) 3.12 U.S. Online Retail Spending By Category: Small Ticket Items (2000/2001) 3.13 Average U.S. Online Spending Per Household: Small Ticket Items (2000/2001) 3.14 U.S. Online Retail Spending By Category: Big-Ticket Items (2000/2001) 3.15 Average U.S. Online Spending Per Household: Big Ticket Items (2000/2001) 3.16 U.S. Online Retail Spending: Top Categories (Q3-2000/Q32001) 3.17 U.S. Online Retail Spending Comparison: Top Categories (Q3-2000/Q3-2001) 3.18 U.S. Online Buying Penetration By Product Category 3.19 U.S. Online Buying Penetration By Product Category And User Tenure 3.20 Types Of Online Purchases By U.S. Internet Users 3.21 Types Of Online Purchases By U.S. Teens 3.22 Estimated Revenue Mix For Amazon.com (Q4-2000) 3.23 Estimated Revenue Mix For eBay (Q4-2000) 3.24 U.S. Retail Auction Site Market Share (By Revenue) 3.25 U.S. Retail E-commerce Site Market Share (By Purchases) 3.26 Online Market Share Of Top Internet And Click-And-Mortar Retailers (2000/2001) 3.27 Leading Websites By Buying Power Index Rating 3.28 Leading Shopping Sites By Buying Power Index Rating 3.29 Leading Portals By Buying Power Index Rating 3.30 Leading Community Sites By Buying Power Index Rating 4.01 U.S. Online Retailer Customer Acquisition Cost (1999-2001) 4.02 U.S. Browser To Buyer Conversion Rate (1999-2001) 4.03 U.S. Auction Site Browser To Buyer Conversion Rate (2001) 4.04 Incentives That Convert Online Shoppers Into Buyers 4.05 Incentives That Convert New & Repeat Customers Into Buyers 4.06 Website Features That Convert Online Shoppers To Buyers 4.07 Top Website Attributes Among Internet Users 4.08 Most Important Online Storefront Attributes 4.09 Important Online Storefront Attributes 4.10 U.S. Internet Users' Expectations For Merchandise Assortment 4.11 Top Online Storefront Attributes 4.12 Interest In Personalization Among U.S. Internet Users 4.13 Frequency Of U.S. Internet Users Updating Personalization Preferences 4.14 U.S. Internet User Satisfaction With Online Shopping 4.15 U.S. Online Shopper/Buyer Satisfaction With Customer Service 4.16 U.S. Consumer Problems With Online Customer Service 4.17 U.S. Internet Users' Preferences For Resolving Customer Service Issues 4.18 Top Customer Service Features For Multi-Channel Retailer Sites 4.19 Leading Consumer Barriers To Buying Online 4.20 Online Shopping Cart Abandonment Rates 4.21 Shopping Cart Abandonment Rates For Selected Retailers 4.22 Top Reasons U.S. Internet Users Abandon Shopping Carts 4.23 What Happens After A Shopping Cart Is Abandoned 4.24 Reasons For Not Purchasing Goods And Services Online 4.25 Why Internet Users Wait To Make The First Online Purchase 4.26 How Consumers Pay For Purchases 4.27 Losses From Online Fraud At Internet Commerce Sites (2000) 4.28 Online Fraud At Internet Commerce Sites 5.01 Concern About Privacy Of Personal Information Provided Over The Internet 5.02 Concern About Website Access To Specific Personal Information 5.03 Personal Information Internet Users Are Willing To Share 5.04 Personal Information A Site Can Share In Return For Customized Content 5.05 What Influences Internet Users To Share Information 5.06 Internet Users' Attitudes About Protecting Their Online Privacy 5.07 Consumer Fears About Internet Crime 5.08 Concern About Misuse Of Credit Card Information Provided Over The Internet 5.09 Concern About Misuse Of Credit Card Information Provided Over The Internet By Age And By Gender 5.10 Comfort Level Providing Credit Card Information Over The Internet 5.11 Comfort Level Providing Credit Card Information Over The Internet By Ethnicity

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Charts and tables in this report (con’t.)
6.01 U.S. Online Retail Sales: Q4/Holiday Period (2000/2001) 6.02 U.S. Online Retail Buyers: Q4/Holiday Period (2000/2001) 6.03 What Internet Users Do Online During The Holidays 6.04 Where Do U.S. Consumers Plan To Shop For Holiday 2001 6.05 Channel Allocation Of U.S. Consumers’ Holiday Shopping Budget (2000/2001) 6.06 How Long Holiday 2000 Online Buyers Have Shopped Online 6.07 U.S. Online Holiday Buyers By Gender (1998/2000/2001) 6.08 Share Of Holiday 2001 Gift Budget U.S. Consumers Plan To Spend Online 6.09 Share Of Holiday 2000 Gift Budget U.S. Consumers Spent Online 6.10 Holiday 2001 Online Spending Plans Among U.S. Internet Users 6.11 Share Of U.S. Consumers Who Plan To Spend The Same Or More Online During Holiday 2001 6.12 When U.S. Consumers Plan To Begin Shopping For Holiday 2001 6.13 Growth Of U.S. Online Holiday Shopping (1998-2000) 6.14 U.S. Online Holiday Shoppers And Buyers (1999/2000) 6.15 Average U.S. Online Order Value For Holiday 1999/2000 6.16 Top 5 Product Categories By Holiday Spending (Nov./Dec. 2000) 6.17 What U.S. Consumers Plan To Buy Online For Holiday 2001 6.18 Top 10 BizRate.com Holiday 2001 Gift Product Searches 6.19 What U.S. Consumers Plan To Buy Online For Holiday 2001 6.20 Sources Of Holiday 2000 Gift Ideas For Online Shoppers 6.21 What Influences Holiday 2000 Online Shoppers 6.22 Why U.S. Internet Users Plan To Shop Online For Holiday 2001 6.23 Why U.S. Internet Users Shopped Online For Holiday 2000 6.24 Number Of Websites Patronized By Holiday 2000 Shoppers 6.25 Where Online Buyers Shopped For Holiday 2000 6.26 U.S. Consumer Satisfaction With Online Holiday Shopping Experience (2000) 6.27 U.S. Consumer Satisfaction With Online Holiday Shopping Experience (1999/2000) 6.28 Difficulties Experienced By Online Shoppers During Holiday 2000 6.29 Barriers To U.S. Internet Users Shopping Online For Holiday 2000 6.30 U.S. Q4 Retail Sales Growth (1996-2000) 6.31 U.S. Q4 Share Of Annual Retail Sales (1996-2000) 6.32 Monthly Share Of U.S. Retail Sales (2000) 6.33 Growth In U.S. Retail Chain Store Holiday Sales (1996-2001) 6.34 Monthly Share Of U.S. Online Retail Sales (2000) 6.35 Average Amount Spent Online In The U.S. During Q4-2000 6.36 Median Holiday 2000 Gift Budget Among U.S. Youths 6.37 Holiday 2000 Online Spending By U.S. Youths 6.38 Average Q-4 Online Spending Per U.S. Household Per Month By Category (2000/2001) 6.39 U.S. Q4 Online Retail Spending By Category: Small Ticket Items (2000) 6.40 Q4 Share Of Total Online Retail Spending By Category: Small Ticket Items (2000) 6.41 U.S. Q4 Online Retail Spending By Category: Big Ticket Items (2000) 6.42 Q4 Share Of Total Online Retail Spending By Category: Big Ticket Items (2000) 6.43 Weekly Online Shopping Activity For Holiday 2000 6.44 Weekly Aggregate Online Shopping Trips For Holiday 2000 6.45 Peak Traffic Week For Online Holiday Shopping By Category 6.46 Fulfillment Time For Internet-Only vs. Click-And-Mortar Retailers For Holiday 2000 6.47 Fulfillment Time For Select Online Retailers For Holiday 2000 6.48 Total Time To Delivery For Select Online Retailers For Holiday 2000 6.49 Fulfillment Time For Last Minute Holiday 2000 Orders

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Section I.
The Online Consumer Population

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During a typical month, approximately 40 million Internet users in the U.S. -- or roughly one-third of active Internet users and almost one-in-five American adults - complete at least one online purchase. By the end of 2001, almost one-half (49%) of all Internet users in the U.S. will have made at least one online purchase during the year, according to surveys conducted by the UCLA Internet Project. Gartner Group estimates that more than 118 million individuals -- or roughly 84% of all U.S. Internet users -- had made at least one online purchase at some point in time by mid-2001. Harris Interactive largely concurs, with its own estimate of online buyers which exceeds 100 million individuals in the U.S. alone.

1.01 Estimated U.S. Population Of Online Buyers
Online Buyers 118.4 mn 100.2 mn 99.5 mn 75.3 mn 71.5 mn 39.4 mn 39.3 mn 38.6 mn 35.2 mn 35.0 mn Est. % of US Adults (18+) 56.6% 47.9% 47.6% 36.0% 34.2% 18.8% 18.8% 18.5% 16.8% 16.7% Period Covered Ever Ever 1/2001 - 7/2001 5/2000 - 4/2001 Q1-2001 9/1/2001 - 9/30/2001 3/1/2001 - 3/31/2001 9/1/2001 - 9/30/2001 3/1/2001 - 3/31/2001 3/1/2001 - 3/31/2001 Source Gartner Group Harris Interactive (1) UCLA Internet Project (2) Gallup Organization Gartner Group Forrester Research (3) Taylor Nelson Sofres Nielsen/NetRatings Nielsen/NetRatings Forrester Research (4)

(1) March 2001 estimate. (2) Based on 48.9% of Internet users, including children. (3) Based on 15.2 million households shopping online during September. (4) Based on 13.5 million households shopping online during March.

1.02 U.S. Online Buyers As A Share Of Active Internet Users
Percent of active Internet users who have completed an online purchase during period

40% 38% 36% 34% 32% 30.3% 30% 28% Nov. 2000 Dec. 2000 Jan. 2001 Feb. 2001 Mar. 2001 Apr. 2001 May 2001 Jun. 2001 Jul. 2001 Aug. 2001 Sep. 2001 33.2% 32.0% 31.2% 31.7% 31.6% 31.3% 31.3% 35.6% 34.8% 32.9%

Source: Nielsen/NetRatings, 10/2001

The number of U.S. Internet users who have purchased something online has grown slowly -- but steadily -- throughout 2001, according to data from both Nielsen/NetRatings and Forrester Research (see also 3.10). The share of online buyers as a percentage of active Internet users -- individuals who have gone online at least once during the last 30 days -- has generally remained

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between 31-32% throughout 2001, so the actual number of online buyers has expanded essentially in parallel with the overall Internet population. During the first nine months of 2001, Nielsen/NetRatings estimates that the number of active Internet users went from roughly 107 million to about 112 million in the U.S. while the number of online buyers in the U.S. fluctuated between 33 million and 39 million per month.

1.03 U.S. Online Buyers vs. Active Internet Users By Month
Millions of individuals

Online Buyers Sep. 2001 Aug. 2001 Jul. 2001 Jun. 2001 May 2001 Apr. 2001 Mar. 2001 Feb. 2001 Jan. 2001 Dec. 2000 Nov. 2000 Oct. 2000 Sep. 2000 0 38.6

Internet Users At Home And At Work 110.8 112.6

37.1 112.6 35.2 112.9 35.3 113.7 35.9 113.1 35.9 112.7 35.2 109.5 33.9 106.3 37.8 108.7 36.1 105.3 31.9 91.1 30.9 89.1 30.9 30 60 90 120 150

Source: Nielsen/NetRatings, 10/2001

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Although the U.S. Internet population is skewed toward younger individuals, most e-commerce activity originates among older users, according to Gartner Group. Internet users between 18 and 24 years old account for 15% of the adult online population and 13% of online buyers, but they account for only 3% of online retail spending. In contrast, Internet users between 25 and 34 account for 32% of online retail spending but only 22% of the online population. More than one-half (53%) of all online retail spending originates from Internet users between 35 and 54 years old.

1.04 Age Of U.S. Online Buyers
Percent of online buyers

55 And Older 16.3%

18 To 24 Years Old 13.1%

35 To 54 Years Old 45.9%

25 To 34 Years Old 24.7%
Source: GartnerG2, 6/2001

1.05 Age Of U.S. Online Buyers vs. Internet Users
Percent of online buyers

12.0% 55+ 16.3% 18.6% 53.0% 35 To 54 45.9% 44.3% 32.0% 25 To 34 24.7% 21.9% 3.0% 18 To 24 13.1% 15.2% 0% 10% 20% 30% 40% 50% 60%

Share Of Online Sales Revenue Share Of Online Buyers Share Of Internet Users

Source: GartnerG2, 6/2001

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Business-to-Consumer E-Commerce Report

1.06 Penetration Of Purchasing Online By Age Group In The U.S.
Percent of individuals in each age group who are online buyers

80% 57% 43% 40%

60%

53% 45%

20%

0% 18 To 24 25 To 34 35 To 54 55+
Source: GartnerG2, 6/2001

Although Internet users between 35 and 54 years old account for almost onehalf (46%) of all online buyers, only slightly more than one-half (53%) of them have purchased anything online, according to Gartner Group. The highest penetration for buying online is among Internet users between 25 and 34 years old while the lowest is among 18 to 24 year olds. A majority (58%) of online buyers earn $50,000 or less per year compared with approximately 83% of the overall U.S. population. At the upper-end of the income scale, 7% of online buyers have an income in excess of $100,000 versus 3.5% of the general population.

1.07 Individual Income Of U.S. Online Buyers
Percent of online buyers

< $30,000 27% No Response 4% $100,000+ 7% $70K To $99K 12% $30K To $49K 31%

$50K To $69K 19%

Source: Ernst & Young, 2001

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The level of education of online buyers is approximately the same as the overall Internet population. Ernst & Young estimates that more than one-third (35%) of online buyers are college graduates compared to 35% of the general Internet population. Less than one-in-four (23%) online buyers have a high school diploma or less versus 29% of all Internet users.

1.08 Education Of U.S. Online Buyers
Percent of online buyers Some High School Other 3% 6% Doctoral/Medical Degree 3%

High School Graduate 20%

Graduate/Law School Degree 10% 4-Year College Degree 22% Some College 36%
Source: Ernst & Young, 2001

1.09 Education Of U.S. Online Buyers vs. U.S. Internet Users
Percent of online buyers

Internet Users High School Graduate Or Less 23% 29%

Online Buyers

36% Attended College 34% 35% 37% 0% 10% 20% 30% 40% 50% 60%

College Graduate Or More

Source: Ernst & Young, 2001; Mediamark Research, Spring 2001

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The penetration rate for online shopping among both African-Americans and Hispanic-Americans is significantly less than the penetration rate for the overall Internet population, according to the Cultural Access Group. An August 2001 report by the organization estimated that only 31% of African-Americans and 32% of Hispanic-Americans had ever purchased anything online, which is less than one-half the penetration rate for Internet users overall.

1.10 Ethnicity Of U.S. Online Buyers
Percent of Internet users in each ethnic group

Research Purchases Online 100% 80% 60% 40% 20% 0% All Internet Users 74% 69% 54%

Complete Purchases Online

59%

31%

32%

African-American Internet Users

Hispanic-American Internet Users

Source: Cultural Access Group, 8/2001

1.11 Marital Status Of U.S. Online Buyers vs. U.S. Internet Users
Percent of online buyers

Single/Other

Married

59% Online Buyers 41%

61% Internet Users 39%

0%

10%

20%

30%

40%

50%

60%

70%

Source: Ernst & Young, 2001; Mediamark Research, Spring 2001

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1.12 Primary Types Of Online Consumers
Percent of online shoppers/buyers

Netizens 15%

Cherry Pickers 26%

Variety Seekers 16%

Time Savers 21%

Brand Reliants 22%
Source: Accenture, 2001

The population of online shoppers and buyers fall neatly into five distinct segments, according to Accenture, with each defined by a unique set of purchasing needs and preferences. The company has identified the following groups and their respective characteristics: • Cherry Pickers -- Bargain hunters who want a wide selection of brands and a diversity of products but consider pricing the highest priority in their shopping decisions. Cherry Pickers have little in common with each other beyond their shopping preferences, however, the segment skews somewhat towards the young -- 47% are younger than 35 -- and the educated -- 42% are college graduates, which is higher than any other segment. Brand Reliants -- These individuals value competitive pricing but are equally concerned with brand reputation and the privacy of their personal information. Time Savers -- The Time Saver considers speed and convenience most important in making their shopping decisions. They will gravitate toward websites that are fast, functional, and easy to use; the relative weighting of these particular performance measurements are collectively almost three times more important to them than pricing. Variety Seekers -- The Internet’s shoppers and browsers, they want a comprehensive selection of reputable brands, broad product selection, and customized offerings along with fast-loading pages. Among Variety Seekers, pricing does not even make their top 10 list of considerations. Netizens -- These individuals are at home on the Internet, but also aware of the risks in cyberspace so the security of their personal information is paramount, followed by website speed and quality. Although pricing is among the top 10 concerns of Netizens, it ranks down the list in eighth place.

• •

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1.13 Top Concerns Of Online Consumers By Segment
Relative importance among each consumer segment

Cherry Pickers Variety Seekers

Brand Reliants Netizens 79 97

Time Savers

Price Level 105

133 144 167 123

Brand Selection

75 86 104 121 126

Category Breadth

76

90 95

122 116 124 116

Brand Reputation

142 139 143

Customer Information Privacy

78

99 113 116 108

Site Speed

Site Functionality 82

103 106 101 106 100 113 101

130

125

Interactive Experience

78

87 89

Site Ease Of Use 76 81 71 Brand Familiarity 74 81 Online/Offline Integration 74 Site Personalization

96 89

117

105 126 94 99 86 112 110

67 72 60

80 78

Online/Offline Presence 53 0 50

75 78

90

100

150

200

Source: Accenture, 2001

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Business-to-Consumer E-Commerce Report

Section II.
Online Consumer Activities

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The majority (61%) of online buyers complete no more than a few purchases per year, according to the Gallup Organization. Surveys by the UCLA Internet Project in May and July 2001 found that the average anticipated number of online purchases for 2001 was 12. The UCLA surveys also found that Internet users who had been online for five or more years expected to make 5-times more purchases during the year -- an average of 20 online purchases -- than users who had been online less than one year. These newer Internet users expected to make an average of four online purchases during the same time period.

2.01 How Frequently U.S. Consumers Buy Online
Percent of adults in each group

As A Share Of All Internet Users 80%

As A Share Of Online Buyers Only

60% 60% 43% 40% 23% 20% 8% 3% 0%
Once A Week Several Few Times Times A A Year Month About Once A Year Less Often No Response

17% 9% 7%

18% 3% 5% 3% 1% N/A
Never

Source: Gallup Organization, 4/2001

2.02 Number Of Online Purchases Completed
Percent of Internet users purchasing online between 9/2000 and 2/2001

None 12% More Than 25 8%

1 To 2 17%

3 To 5 26%

11 To 25 15% 6 To 10 22%
Source: Arthur Andersen, 3/2001

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Business-to-Consumer E-Commerce Report

2.03 Number Of Online Purchases By Tenure
Percent of online buyers in each group

New Users (<1 year online) 100% 94.7% 80% 60% 40% 20% 5.3% 0% 1 To 10 68.6%

Very Experienced Users (5+ years online)

16.0% 0.0%

12.1% 0.0% 3.1% 51+

11 To 20

21 To 50

Source: UCLA Internet Report, 7/2001

2.04 Annual Spending Among Online Buyers By Tenure
Percent of Internet users in each group

New Users (<1 year online) 79.1% 100% 80% 60% 40% 20% 0% $0 $1 To $100

Very Experienced Users (5+ years online)

37.1%

11.2%

19.0%

8.0%

4.1%

5.3%

3.3%

1.1%

$101 To $200

$201 To $300

$301 To $400

0.9%

Source: UCLA Internet Report, 7/2001

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3.5% >$400

27.3%

Business-to-Consumer E-Commerce Report

More than three-quarters of all online buyers spend an average of less than $100 per month on their purchases, according to estimates from Accenture, Arthur Andersen, and the UCLA Internet Project. The UCLA surveys also found that the amount spent by online buyers increases along with the amount of time they’ve used the Internet (see 2.04). Gartner Group has found that a significant variation in the amount spent online also exists between age groups. The company estimates that buyers over 55 years old spent an average of $92 per month online during the first-quarter of 2001 compared to only $40 for buyers between 18 and 24 years old. A survey of J.C. Penney shoppers conducted in 2001 by IBM found that the average online purchase through the retailer’s website was $500 while the average transaction in its department stores was $122. Individuals who shopped through both the company’s website and the department stores spent an average of $1,000.

2.05 Spending For Online Purchases
Percent of Internet users purchasing online between 9/2000 and 2/2001

No Purchases 13%

Less Than $25 5% $25 To $49 8% $50 To $99 12%

More Than $500 23%

$100 To $499 39%
Source: Arthur Andersen, 3/2001

2.06 Spending For Online Purchases
Percent of online buyers

More Than $250 Per Month 6%

Less Than $100 Per Month 79%

$100 To $249 Per Month 15%

Source: Accenture, 2001

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Generally speaking, the longer an individual has been using the Internet, the more likely he or she is to purchase online. Gartner Group reports that less than one-third of the individuals who started using the Internet during 2000 or 2001 had purchased anything online by mid-2001. Among Internet users who have been online for four or more years, 62% were online buyers. The highest penetration of online buying activity (65-66%) was among 25 to 34 year olds and 35 to 54 year olds who have been online since 1997 or earlier.

2.07 Tenure Of U.S. Online Buyers
Percent of Internet users in each tenure group buying online during Q2-2001

80% 62% 60% 51% 40% 40% 33% 24% 20%

0% 1997 Or Before 1998 1999 2000 2001
Year first used the Internet
Source: GartnerG2, 6/2001

2.08 Tenure Of U.S. Online Buyers By Age
Percent of Internet users in each tenure and age group buying online during Q2-2001

18 To 24

25 To 34

35 To 54

55 Or Older

80%
66% 65% 60% 57% 55%

60%

51%

40%

38%

39%

38%

37%

40%

45% 31% 30%

29%

40%

17%

21%

23%

20%

0%
1997 Or Before 1998 1999
Year first used the Internet
Source: GartnerG2, 6/2001

2000

2001

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15%

Business-to-Consumer E-Commerce Report

Among individuals who shop online, more than one-half (57%) indicated that they shopped at retail stores less frequently since going online, according to a survey by Ernst & Young. The survey also found that an average of 59% of the online purchases by these individuals would have otherwise been made from traditional stores and catalogs. Almost one-third (30%) preferred to shop at websites of companies that also have a physical presence. Only 38% of online buyers in the survey, however, were likely to shop online but purchase through another channel. A November 2001 survey by the Yankee Group found that 46% of U.S. Internet users go online at least weekly to gather information about products they are considering buying. The UCLA Internet Project reports that 65% of its respondents have shopped online and then purchased the product(s) in a local store. Between 2000 and 2001, the number of Internet users who frequently shopped online and purchased offline increased from 16% to 23% while the number doing so occasionally declined from 59% in 2000 to 42% in 2001. Trade association Shop.org reports that among the online shoppers it surveyed in mid-2001 who patronized so-called tri-channel retailers, 34% had completed purchases through all three of the retailer’s sales channels -- physical stores, online, and mail order catalogs.

2.09 Where U.S. Consumers Shop
Percent of adults in the U.S.

Women

Men 89% 89% 33% 44% 30% 28%

Malls/Dept. Stores

Catalogs

Internet

TV/Home Shopping

7% 9% 0% 20% 40% 60% 80% 100%

Source: Gallup Organization, 4/2001

2.10 How U.S. Internet Users Use The Web To Shop
Percent of Internet users

Shop Online, Purchase Online

40%

Shop Online, Purchase Offline

51%

Shop Offline, Purchase Online

9%

0%

10%

20%

30%

40%

50%

60%

Source: NPD Online Research, 5/2001

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Ninety-two percent of Internet users use the Web to shop either for or purchase products and services, according to NPD Online Research. The company also reports that those individuals who aren’t actually purchasing online are nevertheless still influenced by what they see on retailers’ websites. Retailers who simply measure online sales overlook the full benefit of a web presence. Among occasional buyers -- those who have made only one or fewer online purchases during the last six months -- 84% use the Internet to shop online but they most frequently make their purchase offline.

2.11 How U.S. Consumers Gather Product Information
Percent of Internet users

Always Use 8%

Use Often

Use Sometimes

Never Use

Browse Retail Website Use Online Price Comparison Tools Browse At Store Or Mall 4%

36% 39% 17% 29% 22% 15% 39% 36% 21% 6% 33% 40% 21% 6% 34%

Newspaper Ads

Word Of Mouth 9% 0% 20%

46% 39% 40% 60%

Source: Know ledge Systems & Research, 5/2001

2.12 Seven Factors For Success In Online Retailing
The Yankee Group laid out in a March 2001 research report what they believed to be the principal factors for success in online retailing. These factors include: 1. Selling goods at sufficient gross margins to sustain a profitable business model 2. Offering online consumers a convincing and compelling value proposition 3. Ensuring customer acquisition costs are in line with average sales amounts 4. Providing customers with a user-friendly Web experience that engages visitors 5. Achieving significant visitor traffic while simultaneously managing high conversion rates 6. Managing cost-effective and efficient product fulfillment 7. Providing impeccable customer support through multiple touch points

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Gartner Group reports that brand value and past experience play a significant role in Internet users’ choices about which sites they decide to patronize. The company’s research has found that 59% of online buyers typically limit their purchases to only a handful of sites that they find familiar and comfortable. If Internet users are unsure about which website to visit when shopping online, typing the desired product name into a search engine is the most frequently mentioned method for determining where to go. Search engines and e-mail are also the most common means of learning about new websites.

2.13 How U.S. Internet Users Learn About Websites
Percent of Internet users

Search Engine E-mail Message Word Of Mouth Banner Ad Print Article TV Commercial Magazine Ad Radio Ad 0% 19.8% 20% 40% 60% 53.0% 48.3% 43.2% 41.4% 37.5%

73.4% 72.8%

80%

100%

Source: Forrester Research, 3/2001

2.14 How U.S. Internet Users Search For Products Online
Percent of Internet users

Type Product Name Into Search Engine

28%

Go Straight To Store URL

23%

Type Brand Name Into Search Engine

9%

Type Store Name Into Search Engine Go To Shopping Channel Of Search Engine

5%

5% 0% 10% 20% 30% 40% 50%

Source: Jupiter Media Metrix, 7/2001

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Most online buyers do very little cross-shopping between multiple sites, according to Jupiter Media Metrix, which reports that many simply prefer to return to the same sites they have done business with in the past. More than 80% of online buyers complete their purchases at the first site they visit when shopping for books, toys or music. Shoppers interested in computer- and travel-related purchases are the most likely to visit competing sites before making a final decision. A May 2001 survey of Internet users by Knowledge Systems & Research found that more than half (56%) of Internet users go directly to a specific website when they are shopping online while only one-third (32%) typically start out at a portal or search engine.

2.15 How Online Shoppers Get To Websites
Percent of Internet users

Don't Shop Online 12%

Go Directly To Online Store 56%

Begin At Online Mall, Portal, Or Search Engine 32%
Source: Know ledge Systems & Research, 5/2001

2.16 Internet Users Purchasing At The First Site Visited
Percent of online buyers

100% 80% 60% 40% 20% 0%

89%

84%

81%

76% 65% 55%

Books

Toys

Music

Electronics Computers

Travel

Source: Jupiter Media Metrix, 2001

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The value of a multi-channel strategy is illustrated in the results of a March 2001 survey by Knowledge Systems & Research which found that 39% of U.S. Internet users have gone online to identify an item to purchase and then visited a brick-and-mortar store to make the actual purchase. One-in-ten have also returned a purchase made online to a store or outlet. The importance of call center capabilities are underscored by the one-third of Internet users in the survey who have used the telephone at least occasionally to either ask product-related questions, confirm that an online purchase has been correctly processed, or place an actual order based on product information from the company website.

2.17 Multi-Channel Online Shopping Activities Of U.S. Internet Users
Percent of Internet users

Browsed online to determine what to purchase then visited stores to make purchases Telephoned customer service agent to ask question about product considered purchasing online Browsed online to determine what to purchase then called to make purchases Telephoned customer service agent to confirm an online transaction was processed correctly Returned a purchase made online through the mail Cancelled a purchase made online through a phone call Returned a purchase made online to a store or outlet

39%

33%

32%

31%

20%

13%

10%

None of the above

25%

0%

20%

40%

60%

Source: Know ledge Systems & Research, 3/2001

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Section III.
E-commerce Market Size and Composition

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3.01 U.S. Online Retail Sales Estimates (2001)
Billions of dollars

Giga Information (high) IDC Giga Information (low) Boston Consulting Group Forrester Research Yankee Group Robertson Stephens Gartner Group (1) CyberDialogue Dataquest BizRate.com Jupiter Media Metrix (2) $0 $30 $81.4 $72.7 $65.0 $65.0 $57.2 $57.0 $48.7 $41.0 $39.3 $38.1 $34.0 $60 $90

$107.8

$120

$150

1) Estimate for North America. 2) Excludes travel, autos and prescription drugs Source: As noted, 2/2001-9/2001

3.02 Total U.S. Consumer Internet Commerce (1999-2006)
Billions of dollars, excluding travel, autos and prescription drugs

$200

$150 $104.4 $100 $63.9 $47.8 $50 $24.1 $12.3 $0 1999 2000 2001 2002 2003 2004 2005 $34.1 $82.9

$130.3

2006

Source: Jupiter Media Metrix, 5/2001

Estimates of U.S. online retail sales for 2001 range from $34 billion -- a forecast that does not include travel expenditures and online auto sales, which we would estimate at approximately $15 billion -- and $38 billion on the low end to $108 billion on the high end. Estimates of online retail sales worldwide range from $49 billion on the low end to $494 billion on the high end (see 3.03). Jupiter Media Metrix predicts that online retail sales in the U.S. will grow by

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approximately 40% per year in 2001 and 2002, which is down from about 100% from 1999 to 2000. By 2005, the company expects the annual growth rate will slow further to approximately 25%.

3.03 Total Worldwide Consumer Internet Commerce (2000-2004)
Billions of dollars

Source Ovum Forrester Research IDC Gartner Group Merrill Lynch Goldman Sachs

2000 $29 bn $53 bn $59 bn -$218 bn $238 bn

2001 $49 bn $96 bn --$398 bn $494 bn

2002 $81 bn $169 bn --$734 bn $870 bn

2003 $133 bn $284 bn $213 bn $380 bn $1,317 bn $1,392 bn

2004 $219 bn $452 bn ---$2,134 bn

Source: As noted, 2000, 2001

Almost one-in-four mobile wireless Internet users in the U.S. have completed at least one purchase using a wireless device, according to Telephia. A fivecountry survey by Accenture found that mobile wireless users in the U.S. were the least likely to have Internet access, but they were the most likely to have made an online purchase, with 12% having done so, followed by Germany (9%), Japan (7%), the U.K. (6%), and Finland (5%). Forrester Research, however, reports that less than one-in-ten (8%) users are comfortable with conducting wireless transactions and 86% are either somewhat uncomfortable or not at all comfortable.

3.04 U.S. Mobile Commerce Revenues (2000-2005)
Billions of dollars
Paid Content $0.5 bn

$5 $4 $3.3 $3 $2 $1 $0.0 $0 2000 2001 2002 2003 2004 2005
Source: Jupiter Media Metrix, 9/2000
Advertising $0.7 bn

$1.7

Shopping $2.1 bn

$0.6 $0.1 $0.2

Total m-commerce revenues worldwide during 2000 were estimated at less than $450 million, according to Jupiter Media Metrix. Japan accounted for approximately $400 million of that activity, followed by Europe ($15 million) and the U.S. ($10 million). Jupiter predicts that global m-commerce activity will reach $1.5 billion in 2001 and $14.5 billion by 2004. In 2005, the company predicts that $22.2 billion in m-commerce revenues will come from shopping ($10.8 billion), paid content ($8.0 billion), and advertising ($3.3 billion). Forecasts by IDC predict a faster growth rate from a lower starting point, with global m-commerce

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revenues reaching $1.0 billion during 2001 and expanding to $20.8 billion in 2004. Ovum comes in on the high end of m-commerce forecasts, predicting almost $70 billion in global revenues in 2005. M-commerce revenues in North America are expected to lag significantly behind those in Europe and Asia. Jupiter predicts that revenues in the U.S. will increase from approximately $10 million in 2000 to $3.3 billion in 2005. In 2005, the company expects shopping to account for $2.1 billion in revenue followed by advertising ($0.7 billion) and paid content ($0.5 billion).

3.05 Quarterly Estimated U.S. Online Retail Sales
Billions of dollars, including auction fees and commissions

Q3-2001 Q2-2001 Q1-2001 Q4-2000 Q3-2000 Q2-2000 Q1-2000 Q4-1999 $0.0 $2.0 $4.0

$7.472 $7.458 $7.592 $8.881 $6.898 $5.982 $5.526 $5.266 $6.0 $8.0 $10.0

Source: U.S. Census Bureau, Economics & Statistics Administration, 11/2001

3.06 Online Retail Sales Share Of Total U.S. Retail Sales
Percent of total retail sales during each period

Q3-2001 Q2-2001 Q1-2001 Q4-2000 Q3-2000 Q2-2000 Q1-2000 Q4-1999 0.0% 0.4%

0.95% 0.92% 1.04% 1.09% 0.89% 0.77% 0.77% 0.67% 0.8% 1.2% 1.6% 2.0%

Source: U.S. Census Bureau, Economics & Statistics Administration, 11/2001

The U.S. Department of Commerce began tracking online retail sales in late 1999. The estimates are based on monthly surveys of approximately 11,000 retail establishments in the U.S., excluding travel and ticketing agencies and financial The Internet Commerce Briefing | 27

Business-to-Consumer E-Commerce Report

services. Since the fourth-quarter of 1999, the Department of Commerce estimates that consumer e-commerce has grown from 0.67% of total retail sales to approximately 1%. Total U.S. retail sales -- both online and offline -- during the first 10 months of 2001 were $1.86 trillion, which is up 2.7% from the comparable period in 2000, according to the Department of Commerce. Total retail sales for the entire 2000 calendar year were $2.25 trillion. The slowest months for retail sales activity in 2000 and 2001 were January and February. The busiest months during 2000 were, not surprisingly, November and December.

3.07 U.S. Retail Sales By Month (2000/2001)
Billions of dollars, excluding auto sales and parts (not seasonally adjusted)

2000 January February March April May June July August September October November December N/A

2001 $170.59 $158.69 $166.18 $164.73 $186.60 $183.88 $186.06 $178.78 $198.79 $190.75 $192.12 $187.87 $187.43 $182.89 $198.88 $191.65 $180.53 $183.23 $191.34 $186.55 $198.71

N/A $243.26 $0 $50 $100 $150 $200 $250 $300

Source: U.S. Census Bureau, Economics & Statistics Administration, 11/2001

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Data from both Forrester Research and Nielsen/NetRatings indicate that month-to-month fluctuations in online retail sales track the fluctuations in overall retail sales with a reasonably high degree of correlation. Between September 2000 and September 2001, January and February were the slowest months for online retail sales while November and December were generally the busiest.

3.08 U.S. Online Retail Sales By Month (9/2000-9/2001)
Millions of dollars

Forrester Research Sep. 2000 Oct. 2000 Nov. 2000 Dec. 2000 Jan. 2001 Feb. 2001 Mar. 2001 Apr. 2001 May 2001 Jun. 2001 Jul. 2001 Aug. 2001 Sep.2001 Oct. 2001 Nov. 2001 $0 $2,000 $4,000 $3,780 $3,044 $3,390 $3,358 $3,517 $3,512 $4,489 $4,286 $3,086 $4,221 $3,703 $4,212

Nielsen/NetRatings

$4,788 $6,394 $7,223 $6,165

$5,383 $3,928 $5,299 $3,208 $4,932 $3,979 $5,562 $4,043 $4,743 $3,971 $4,600 $3,634 $5,300 $4,931 $6,000 $8,000 $10,000

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The average amount spent by households shopping online increased steadily during each of the first five months of 2001 -- both in month-to-month terms and relative to the comparable periods in 2000 -- however, monthly spending levels after May 2001 have lagged behind the levels in 2000, with sole the exception of a slight increase (2.4%) in November. Over the first ten months of 2001, the average amount spent per month by households buying online was $259. The average for the same period in 2000 was $251 and $259 for the entire 2000 calendar year.

3.09 Average U.S. Online Spending Per Household Per Month (2000/2001)
Dollars per household across 25 categories

2001 January February March April May June July August September October November December N/A $0 $100 $200

2000 $202.59 $228.88 $178.20 $247.89 $228.92 $263.07 $256.18 $273.18 $249.29 $265.13 $288.20 $246.62 $290.01 $270.27 $280.41 $272.69 $272.42 $261.66 $268.33 $264.86 $285.34 $292.28 $308.34

$300

$400

Source: Forrester Research

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The number of online buyers per month has grown by less than 10% during the first nine months of 2001, according to data from both Nielsen/NetRatings and Forrester Research. Over the course of 2001, estimates of the number of online buyers from both companies have tracked very closely with each other.

3.10 U.S. Online Buyers By Month (9/2000-9/2001)
Millions of buyers

Forrester Research (1) Sep. 2000 Oct. 2000 Nov. 2000 Dec. 2000 Jan. 2001 Feb. 2001 Mar. 2001 Apr. 2001 May 2001 Jun. 2001 Jul. 2001 Aug. 2001 Sep.2001 0 20 30.9

Nielsen/NetRatings

40.1 30.9 41.4 31.9 57.0 36.1 51.8 37.8 34.4 33.9 35.0 35.2 35.0 35.9 40.4 35.9 38.3 35.3 33.9 35.2 38.1 37.1 38.3 38.6 39.4 40 60 80

(1) Based on estimated number of households buying online during period

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Travel expenditures accounted for almost one-third (31%) of all online retail spending during the first 10 months of 2001, according to Forrester Research. Outside of the travel sector, the next-largest consumer categories for online spending were computer hardware -- accounting for almost one-in-ten of all dollars spent -- apparel, and consumer electronics. The smallest consumer categories among online buyers are garden supplies, appliances, tools and hardware, and small appliances.

3.11 Breakdown Of U.S. Online Retail Spending By Category (2001)
Percent of total online retail expenditures between January and October 2001

Software Books Music Videos Office Supplies Apparel Footwear Jewelry Flowers Linens & Home Décor Health & Beauty Small Appliances Toys/Video Games Sporting Goods Tools & Hardware Garden Supplies Computer Hardware Consumer Electronics Appliances Furniture Food & Beverages Air Tickets Car Rental Hotel Reservations Other 0% 0.80% 1.32% 1.23%

3.28% 4.16% 3.19% 2.35% 2.75% 6.35% 1.66% 2.33% 1.43% 1.94% 3.14%

3.03% 1.85% 1.13% 0.73% 9.33% 5.00%

2.65% 16.96% 4.29% 9.65% 9.44% 5% 10% 15% 20%

Source: Forrester Research, 10/2001

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During the first 10 months of 2001, online retail sales of so-called small-ticket items actually declined across more than one-half of the product categories tracked by Forrester Research when measured against the comparable period in 2000. The only categories which have shown year-over-year growth for the January to October period are apparel, footwear, jewelry, linens/home décor items, small appliances, and sporting goods. The fastest growth occurred in the sales of apparel and footwear, which expanded by 29% and 25% respectively. The largest declines took place in the sales of software and books which each fell by 16% between 2000 and 2001.

3.12 U.S. Online Retail Spending By Category: Small Ticket Items (2000/2001)
Millions of dollars

Jan.-Oct. 2001 Software Books Music Videos Office Supplies Apparel Footwear Jewelry Flowers Linens & Home Décor Health & Beauty Small Appliances Toys/Video Games Sporting Goods Tools & Hardware (1) Garden Supplies (1) $0 $610.99 $684.56 $444.90 $417.48 $181.46 $269.02 $500 $1,000 $1,500 $445.13 $455.79 $1,223.38 $1,118.45 $493.80 $614.90 $716.18 $860.58 $528.32 $528.68 $622.34 $715.26 $1,294.58 $1,160.78

Jan.-Oct. 2000 $1,446.02 $1,211.65 $1,818.82 $1,536.57 $1,326.35 $1,180.49

$911.10 $868.95 $1,186.30 $1,018.18 $1,821.83 $2,347.27

$2,000

$2,500

$3,000

Prior ro May 2000, Garden category w as included in Tools & Hardw are Source: Forrester Research

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3.13 Average U.S. Online Spending Per Household: Small Ticket Items (2000/2001)
Dollars per household

October 2001 Software Books Music Videos Office Supplies Apparel Footwear Jewelry Flowers Linens & Home Décor Health & Beauty Small Appliances Toys/Video Games Sporting Goods Tools & Hardware Garden Supplies $0 $20 $40 $37.04 $39.94 $47.82 $42.02 $43.34 $33.83 $38.58 $30.29 $33.42 $35.97 $31.09

October 2000

$53.01 $57.30 $64.76 $69.69 $60.79 $65.92 $63.57 $82.04 $59.20 $70.04 $62.98

$60.05 $73.22 $51.96 $49.97 $73.43 $72.28 $61.58 $77.29 $50.83 $58.26 $60 $80 $100

Source: Forrester Research

Jewelry, tools/hardware, and small appliances were the small ticket product categories in which households that shopped online during October 2001 spent the most money, according to Forrester Research. Two of these three product categories also showed the most growth over the previous year, with the average amount spent on jewelry increasing to $82.04 in October 2001, or 29% higher than October 2000, and spending for tools/hardware increased 26% to $77.29 per household in October 2001. Among big ticket items, travel-related expenditures accounted for 35% of total online spending during the first ten months of 2001, down slightly from 38% for the comparable period in 2000. Outside of the travel sector, computer hardware and consumer electronics were the largest big ticket product categories in revenue terms, accounting for 10% and 7.4% of total big ticket spending respectively.

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3.14 U.S. Online Retail Spending By Category: Big-Ticket Items (2000/2001)
Millions of dollars

Jan.-Oct. 2001 Computer Hardware Consumer Electronics Appliances Furniture Food & Beverages Air Tickets Car Rental Hotel Reservations Other $0 $2,000 $1,491.48 $1,585.64 $3,121.41 $3,567.60 $3,336.03 $3,489.93 $4,000 $234.92 $295.51 $415.68 $486.09 $1,236.38 $981.12 $3,289.45 $3,448.42 $1,770.24 $1,849.83

Jan.-Oct. 2000

$5,758.48 $6,270.57

$6,000

$8,000

$10,000

Source: Forrester Research

3.15 Average U.S. Online Spending Per Household: Big Ticket Items (2000/2001)
Dollars per household

October 2001 Computer Hardware Consumer Electronics Appliances Furniture Food & Beverages Air Tickets Car Rental Hotel Reservations Other $0 $74.89 $80.26 $330.71 $285.53 $186.53 $173.03 $228.84 $197.93 $105.27 $105.30 $200 $400 $243.02 $193.16 $191.78 $188.80 $138.82 $140.72

October 2000

$451.90 $531.93

$600

$800

Source: Forrester Research

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3.16 U.S. Online Retail Spending: Top Categories (Q3-2000/Q3-2001)
Thousands of dollars

Category Air Tickets Hotel Reservations Computer Hardware Apparel Books Total Total across all 25 categories

September 2001 $575,261 $342,403 $400,217 $288,420 $183,288 $1,789,589 $3,970,632

August 2001 $742,574 $458,372 $353,960 $262,642 $202,494 $2,020,042 $4,043,396

July 2001 $746,170 $445,186 $335,784 $224,743 $151,561 $1,903,444 $3,978,713

Total Q32001 $2,064,005 $1,245,961 $1,089,961 $775,805 $537,343 $5,713,075 $11,999,741

Total Q32000 $2,099,781 $1,181,519 $1,123,747 $611,591 $607,437 $5,624,075 $12,469,956

Source: Forrester Research, 2001

3.17 U.S. Online Retail Spending Comparison: Top Categories
Millions of dollars

Category Travel Services Air Tickets Hotel Reservations Computer Hardware Clothing/Apparel (1) Auctions Books

Q3- 2001 Forrester Nielsen/ Research NetRatings -$4,258 $2,064 -$1,246 -$1,090 $1,137 $1.002 $1,482 -$1,215 $798 $537

Q3 -2000 Forrester Nielsen/ Research NetRatings -$2,788 $2,100 -$1,182 -$1,124 $928 $778 $839 -$626 $447 $607

(1) Estimates from Forrester Research include apparel and footwear. Source: As noted

The top five product categories -- both in terms of online sales and market penetration among online buyers -- are books, travel, clothing/apparel, and music/videos/DVDs. Books, clothing/apparel, and music CDs are also the most frequently purchased items among repeat online buyers, according to Taylor Nelson Sofres (see 3.20).

3.18 U.S. Online Buying Penetration By Product Category
Percent of online buyers who have ever purchased in each category

Books Computers And Related Products Music/CDs Apparel Travel Toys Consumer Electronics Videos Health & Beauty 29% 28% 28% 27% 25% 37%

52% 49% 49%

0%

10%

20%

30%

40%

50%

60%

Source: Ernst & Young, 2001

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The UCLA Internet Project has found that the market penetration of different product categories varies among online buyers depending on the amount of time they have used the Internet. Much of the difference may be attributable to the technical orientation of many early Internet users. For example, the market penetration rate for computer hardware is four times higher among online buyers with five or more years of Internet experience than it is among those who have been online less than one year (17.2% vs. 4.5%). Veteran Internet users are also more likely than new users to purchase books, electronics, and make travel arrangements online, according to UCLA. Online buyers with less than one year of Internet experience were more likely than veterans to purchase personal items, such as children’s goods, sporting goods, hobby items. jewelry, and prescription drugs.

3.19 U.S. Online Buying Penetration By Product Category And User Tenure
Percent of online buyers from each group who have ever purchased in each category

Very Experienced Users (5+ years online) New Users (<1 year online) 40.8% 10.9% 36.6% 35.6% 24.7% 23.0% 20.7% 11.6% 17.2% 4.5% 15.8% 3.0% 14.7% 14.5% 14.6% 4.2% 8.8% 16.8% 8.4% 10.7% 5.9% 7.5% 3.8% 6.6% 2.6% 5.0% 0% 10% 20% 30% 40% 50%

Books

Clothes

Music CDs

Travel Computers / Peripherals Software / Games

Gifts

Electronics

Children's Goods

Sporting Goods

Hobby Items

Jewelry / Watches

Drugs

Source: UCLA Internet Report, 7/2001

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3.20 Types Of Online Purchases By U.S. Internet Users
Percent of Internet users purchasing within category during past month (March/April 2001)
Books Clothes Music/CDs Furniture/Furnishings PC Hardware Toys/Games PC Software Leisure Travel Business Travel Movie/Theater Tickets Food/Groceries Sports Equipment Electronics Videos Stocks/Mutual Funds Jewelry Cosmetics Cars Other

24% 24% 19% 14% 13% 12% 11% 10% 8% 9% 8% 8% 8% 6% 5% 5% 2% 2% 18%

0%

5%

10%

15%

20%

25%

30%

Source: Taylor Nelson Sofres, 4/2001

3.21 Types Of Online Purchases By U.S. Teens
Percent of teenage online buyers from each gender group

Boys 100% 80% 60% 40% 23% 20% 0% Clothing Shoes Film 18% 7% 52% 40% 43% 36% 75%

Girls

21% 8%

26% 5% Video Games

Software

Stereo Equipment

Source: Harris Interactive, 2000

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3.22 Estimated Revenue Mix For Amazon.com (Q4-2000)
Percent of $972 million total Q4-2000 revenue

Books Electronics Music Video DVD Software Computer/Video Games Toys & Games Tools & Hardware Lawn & Patio Kitchen Products Camera & Photo 0%

35% 20% 15% 14% 4% 3% 3% 2% 1% 1% 1% 1%
10% 20% 30% 40% 50%

Source: Morgan Stanley, 2001

3.23 Estimated Revenue Mix For eBay (Q4-2000)
Percent of 79 million total Q4-2000 online auctions hosted

Collectibles Sports Automotive Antiques Books, Movies, Music Jewelry, Gemstones Photo & Electronics Computers Pottery & Glass Toys, Bean Bag Plush Coins & Stamps Dolls, Figures Everything Else 0% 5% 2% 1% 10% 10% 15% 20% 8% 7% 6% 6% 5% 5% 4% 10% 14%

22%

25%

Source: Morgan Stanley, 2001

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Business-to-Consumer E-Commerce Report

Amazon.com and eBay are clearly the dominant players in the online retailing space. The two companies together account for almost one-third (30%) of all online retail transactions, according to Nielsen/NetRatings, and individually almost four times more transactions than the next closest competitor. In the online auction market space, Nielsen/NetRatings estimates that eBay accounts for almost two-thirds (64%) of all revenues generated or more than 4-1/2 times its closest competitor, uBid.com.

3.24 U.S. Retail Auction Site Market Share (By Revenue)
Percent of all online auction revenues during May 2001

eBay.com uBid.com Egghead.com Yahoo! Auctions Amazon Auctions 0% 4.0% 2.4% 2.0% 10% 20% . 14.7%

64.3%

30%

40%

50%

60%

70%

80%

Source: Nielsen/NetRatings, 5/2001

3.25 U.S. Retail E-commerce Site Market Share (By Purchases)
Percent of all online buyers during March 2001

Amazon.com eBay.com (1) BMG.com BarnesandNoble.com ColumbiaHouse.com Half.com JCPenney.com Travelocity.com CDnow.com Southwest.com 0% 4.3% 3.8% 3.7% 3.1% 3.0% 2.5% 2.2% 2.0% 5% 10%

15.1% 14.5%

15%

20%

(1) Does not include Half.com activity Source: Nielsen/NetRatings, 3/2001

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The online storefronts of leading offline retailers have steadily picked-up ground on many of their pure-play Internet counterparts since 2000, according to Jupiter Media Metrix. Among the top 50 retail websites, Jupiter estimates that click-and-mortar retailers such as Wal-Mart and J.C. Penney collectively attracted about one-half as many visitors as their pure-play Internet counterparts during March 2000. By March 2001, the situation had completely reversed and offline retailers accounted for 56% of all traffic among the top 50 retail sites while pureplay retailers attracted only 44% of the visitor traffic.

3.26 Online Market Share Of Top Internet And Click-And-Mortar Retailers (2000/2001)
Percent of top 50 retail sites ranked by traffic

Click-and-Mortar Retailers

Internet-Only Retailers

44% March 2001 56% 50% September 2000 50% 62% March 2000 38%

0%

10%

20%

30%

40%

50%

60%

70%

Source: Jupiter Media Metrix, 5/2001

Six of the ten leading websites -- in terms of their relative Buying Power Index (BPI) ratings -- are in the travel sector and the balance are shopping sites serving both consumers and businesses. The BPI is calculated by comScore Networks and it measures the total dollars spent online by the average member of a site’s audience, indexed to the total online dollars spent by the average Internet user. For example, a BPI of 200 would mean the average visitor to that site spends twice as much online as the average Internet user.

3.27 Leading Websites By Buying Power Index Rating
Top 10 websites with the highest comScore Buying Power Index ratings

Website Hertz.com Staples.com BizRate.com BassHotels.com Delta.com Newport-News.com Hilton.com Budget.com Southwest.com OfficeDepot.com

Buying Power Index (May 2001) 874 770 748 686 668 660 649 635 598 579

Unique Visitors (May 2001) 1,138,000 1,834,000 5,882,000 1,059,000 2,555,000 1,075,000 930,000 949,000 3,978,000 2,341,000

Type Of Site Travel Shopping Shopping Travel Travel Shopping Travel Travel Travel Shopping

Source: comScore Networks, 6/2001

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3.28 Leading Shopping Sites By Buying Power Index Rating
Top 10 online shopping sites with the highest comScore Buying Power Index ratings

Website Staples.com BizRate.com Newport-News.com OfficeDepot.com Dell.com Egghead.com UrbanG.com Buy.com CompUSA.com NECXdirect.com

Buying Power Index (May 2001) 770 748 660 579 557 531 508 467 466 460

Unique Visitors (May 2001) 1,834,000 5,882,000 1,075,000 2,341,000 4,304,000 1,470,000 1,108,000 2,452,000 984,000 1,115,000

Type Of Site Shopping Shopping Shopping Shopping Shopping Shopping Shopping Shopping Shopping Shopping

Source: comScore Networks, 6/2001

3.29 Leading Portals By Buying Power Index Rating
Top 10 portals with the highest comScore Buying Power Index ratings

Website AltaVista.com Excite.com Juno.com Netscape.com NBCi.com AOL.com Go2Net.com Lycos.com Yahoo.com MSN.com

Buying Power Index (May 2001) 143 142 142 140 140 140 139 133 125 123

Unique Visitors (May 2001) 15,115,000 20,106,000 5,132,000 33,063,000 19,566,000 61,507,000 8,458,000 29,717,000 90,438,000 85,944,000

Type Of Site Portal Portal Portal Portal Portal Portal Portal Portal Portal Portal

Source: comScore Networks, 6/2001

3.30 Leading Community Sites By Buying Power Index Rating
Top 10 community sites with the highest comScore Buying Power Index ratings

Website PsychicRealm.com Genealogy.com ThirdAge.com ePinions.com RootsWeb.com Esquire.com Crosswalk.com iVillage.com Oxygen.com HighSchoolAlumni.com

Buying Power Index (May 2001) 286 257 232 201 193 182 177 172 165 164

Unique Visitors (May 2001) 947,000 1,515,000 1,192,000 3,166,000 2,279,000 971,000 1,016,000 6,657,000 5,022,000 1,114,000

Type Of Site Community Community Community Community Community Community Community Community Community Community

Source: comScore Networks, 6/2001

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Section IV.
Online Merchandising and Customer Service

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The cost of acquiring new online customers has declined steadily since 1999, according to Boston Consulting Group and Shop.org. Among 79 online retailers surveyed by the organizations, the average cost to acquire a new customer declined by 60% between Q1-2000 and Q1-2001, from $45.00 to $18.00 each. Customer acquisition costs have continued their decline throughout 2001, according to both organizations, averaging just $12.00 during the third quarter. During 2000, Boston Consulting Group also found a significant difference in customer acquisition cost between companies operating in the various retail channels, with Internet-only retailers spending 156% more than the overall average while click-and-mortar retailers and catalog merchants spent 3% less and 66% less than average respectively.

4.01 U.S. Online Retailer Customer Acquisition Cost (1999-2001)
Cost in dollars per new customer

$100 $80 $60 $45.00 $40 $20 $0 Q31999 Q41999 Q12000 Q22000 Q32000 Q42000 Q12001 Q22001 Q32001 $35.00 $40.00 $20.00 $23.00 $18.00 $71.00

$14.00 $12.00

Source: Boston Consulting Group/Shop.org, 2001

4.02 U.S. Browser To Buyer Conversion Rate (1999-2001)
Percent of website visitors who place an order online

5.0% 4.0% 3.0% 2.3% 2.0% 1.0% 0.0% Q41999 Q12000 Q22000 Q32000 Q42000 Q12001 Q22001 Q32001 1.9% 1.5% 1.8% 2.6%

2.3%

2.2%

2.0%

Source: Boston Consulting Group/Shop.org, 2001

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4.03 U.S. Auction Site Browser To Buyer Conversion Rate (2001)
Percent of website visitors who place an order online

eBay.com

22.5% 11.0% 8.0% 6.5% 4.4%
0% 5% 10% 15% 20% 25% 30%

uBid.com

Egghead.com

Amazon Auctions

Yahoo! Auctions

Nielsen/NetRatings, 5/2001

4.04 Incentives That Convert Online Shoppers Into Buyers
Percent of Internet users

Not Important Somewhat Important Very Important Free Shipping Price Discounts Improved Product Selection Ability To Return Items To Retail Store Guaranteed Delivery Date Faster Delivery VIP Customer Service 37% 24% Contests, Prizes, Giveaways 29% 24% Loyalty/Rewards Programs 25% 34% Personalized Information Free Newsletters 0% 20% 11% 20% 31% 40% 60% 80% 100% 46% 58% 51% 47% 3% 3% 6% 8% 9% 10% 15% 48% 28% 30% 39%

69% 67% 55%

43% 49% 43% 48% 46% 44%

Source: Know ledge Systems & Research, 5/2001

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4.05 Incentives That Convert New & Repeat Customers Into Buyers
Percent of Internet users

Incentive/Feature Online Coupon Free Shipping Satisfaction Guarantee Discounted Shipping Product Guarantee Price Guarantee Rebate Gift Certificate Loyalty Program Rewards Airline Miles First-time Buyer Discount Charitable Donations

New Customer 24% 32% 14% 15% 13% 12% 7% 7% 5% 3% 13% 1%

Repeat Customer 37% 27% 17% 15% 13% 12% 7% 7% 6% 3% 2% 1%
Source: BizRate.com, 2000

Online coupons and free or discounted shipping are among the most effective incentives for converting shoppers into buyers, according to a BizRate.com survey conducted during 2000. Although guarantees on pricing, product, and overall satisfaction were mentioned as effective incentives by only 12-17% of the individuals surveyed by BizRate.com, 40% of the consumers surveyed by Jupiter Media Metrix indicated that an efficient returns policy was an important motivator and 37% said the same about “good customer service.” Loyalty programs served as an incentive to buy among 22% of the Jupiter survey respondents but only 56% of BizRate.com respondents. PriceWaterhouseCoopers reports that a majority (77%) of Internet users have used the search function on a website at least once while shopping online and that most have been sufficiently satisfied with the results to use them on a regular basis. In a ranking of the most important online shopping features, search functionality was mentioned by 43% of online shoppers followed by product information at 40%.

4.06 Website Features That Convert Online Shoppers To Buyers
Percent of online shoppers rating feature as increasing likelihood of purchasing

Close-up Product Images Product Availability Product Comparison Guides Search Function 800-Number For Customer Service Product Reviews & Evaluations By Online Shoppers 0% 20%

44% 39% 34% 30% 25% 24% 40% 60%

Source: Pricew aterhouseCoopers, 1/2001

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Most Internet users have little patience when it comes to navigating websites, according to Knowledge Systems & Research, which found that 80% of the users it surveyed in April 2001 would click a median of four times to find what they were looking for before becoming frustrated. Once frustrated, only 13% bother to use an online search function and 2% call customer service while 83% move on to another site. Generally speaking, however, Knowledge Systems & Research found that a majority of Internet users think websites today are easier to navigate than one year ago, with 58% indicating that they are somewhat easier to use and 25% indicating that they are much easier to use. Only 2% of the users surveyed felt that websites had generally become more difficult to navigate.

4.07 Top Website Attributes Among Internet Users
Percent of Internet users indicating attribute was very important in whether to return to site

Ease Of Use/Navigation Fast Download Times Regularly Updated Content Quality Of Content Organization Of Content Access To Customer Service Quantity Of Content On-site Search Engine Front Page Layout Fun Site Look And Feel 0% 30% 25% 20% 19% 18% 20% 40% 60% 40% 40%

74% 65% 58% 57%

80%

100%

Source: Know ledge Systems & Research, 4/2001

4.08 Most Important Online Storefront Attributes
Percent of online shoppers rating each attribute as important

Convenience Product Selection Ease Of Use Speed Reliability Best Price Best Value Security 0% 20% 42% 39% 32% 31% 40% 60% 50% 58% 58%

77%

80%

100%

Source: Odyssey, 2000

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Convenience and site usability ranked high among online buyers surveyed by Odyssey over a six-month period last year. Considerations related to security and pricing among those same individuals, however, ranked noticeably lower than among groups surveyed by Accenture and Knowledge Systems & Research earlier this year. Gartner Group has also found that among Internet users who have completed online purchases, 81% valued convenience -- including website speed and usability -- while only 33% valued price savings. Although price is rarely the most important consideration for most online buyers, they are also not entirely disinterested in what they pay for their purchases. A March 2001 survey of Internet users by Knowledge Systems & Research found that 90% said pricing was a very important aspect of online shopping and 10% said it was somewhat important while one-half (53%) said convenience was very important and 45% said it was somewhat important.

4.09 Important Online Storefront Attributes
Percent of Internet users

Very Important N/A
Price

Somewhat Important

Not Important

10% 90% 2%

Product Selection

37% 61% 1%

Customer Service

40% 59% 2%

Convenience

45% 53% 17% 61% 22% 0% 20% 40% 60% 80% 100%

Recognized Or Known Retailer

Source: Know ledge Systems & Research, 3/2001

4.10 U.S. Internet Users’ Expectations For Merchandise Assortment
Percent of Internet users
About The Same Number Of Products Plus Specials Not Available In Retail Store About The Same Number Of Products As Retail Store More Products Than Retail Store Or Catalog Fewer Products Than Retail Store Or Catalog Entirely Different Range Of Products

51% 21% 18% 8% 2% 0% 20% 40% 60% 80%

Source: Ernst & Young, 2000

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4.11 Top Online Storefront Attributes
Percent of Internet users

Easy Order Processing Security Features Ease Of Use/Navigation Quantity Of Product Information Variety Of Products Access To Customer Service Fast Download Times Organization Of Product Selections Personalized Product Recommendations On-site Search Engine Front Page Layout Fun Site Look And Feel 28% 27% 22% 20% 13% 7% 6% 2% 2% 2% 0% 20% 40% 60% 42%

68% 65%

80%

100%

Source: Know ledge Systems & Research, 4/2001

4.12 Interest In Personalization Among U.S. Internet Users
Percent of Internet users

Yes 54%

No 46%

Source: Know ledge Systems & Research, 4/2001

A majority (54%) of Internet users have taken advantage of personalized web pages, according to Knowledge Systems & Research. A March 2001 survey conducted by CyberDialogue for the Personalization Consortium also found that 56% of Internet users were more likely to purchase from a site that supports

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personalization and 63% were more likely to register at a site that allows personalization or content customization. In addition, the CyberDialogue survey found that: • • • • • 82% of Internet users were willing to provide personal information such as age, gender, and ethnicity if the site will remember their preferences and profile details 82% of Internet users indicated that a site’s privacy policy is a critical factor in their decision to purchase online 84% of users have refused to provide information at a site because they were unsure how it would be used 28% of “personalizers” spent more than $2,000 online last year (2000) while only 17% of “non-personalizers” spent as much 21% of “personalizers” have paid for online subscriptions compared to only 11% of “non-personalizers”

Internet users who avail themselves of a website’s personalization features appear more likely than the average visitor to revisit the site. In addition, sites that offer personalization appear more likely to attract repeat visitors. Among Internet users who use personalized websites or web pages, more than two-thirds (69%) update their preferences quarterly or more frequently, according to Knowledge Systems & Research.

4.13 Frequency Of U.S. Internet Users Updating Personalization Preferences
Percent of Internet users who use personalized sites/pages

Every Two Weeks Or Less Monthly Quarterly Bi-annually Annually Never 0% 9% 7% 10%

15% 24% 30% 15%

20%

30%

40%

Source: Know ledge Systems & Research, 4/2001

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The majority (70%) of online shoppers and online buyers are generally satisfied with the experience, including website features and usability, product selection, pricing, and order fulfillment. Consumers, however, are split on the quality of customer service, according to Knowledge Systems & Research, whose surveys have found that almost one-in-four (23%) online shoppers and buyers are either somewhat or very dissatisfied and another 20% are neutral on the topic. Only 49% of survey respondents were satisfied with the current level of online customer service. When it comes to customer service shortcomings, the biggest complaints among consumers included slow responses to their questions or problems and the limited number of options they were frequently offered for contacting a particular online retailer. A survey of 502 online shoppers by Primus Knowledge Solutions back in 2000 found that the number one expectation among consumers was a timely response to their questions; 14% of respondents also expected 24-hour availability from online retailers.

4.14 U.S. Internet User Satisfaction With Online Shopping
Percent of Internet users

Neutral 15%

Somewhat/Very Satisfied 70%

Somewhat/Very Dissatisfied 7% Not Applicable 8%

Source: Know ledge Systems & Research, 3/2001

4.15 U.S. Online Shopper/Buyer Satisfaction With Customer Service
Percent of online shoppers and buyers

Neutral 20%

Somewhat/Very Satisfied 49%

Somewhat/Very Dissatisfied 23% Not Applicable 8%
Source: Know ledge Systems & Research, 3/2001

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4.16 U.S. Consumer Problems With Online Customer Service
Percent of Internet users

Somewhat Of A Problem Not A Problem 27%
Form Reply Is Only Option

Significant Problem

29% 44% 31% 25% 44% 30% 24% 46% 25% 21% 54%

No Phone Number Listed

Lack Of Coordination Between Different Parts Of Company

Slow Response Time

0%

10%

20%

30%

40%

50%

60%

Source: Know ledge Systems & Research, 3/2001

When customer service issues arise, almost three-quarters (71%) of Internet users indicated that the most important action a company can take to avoid losing their future business is simply respond quickly in resolving the problem. Offering customers refunds is not automatically the best approach to resolving problems, according to Knowledge Systems & Research which found only 16% of Internet users said that was the resolution action most likely to lead to future business.

4.17 U.S. Internet Users’ Preferences For Resolving Customer Service Issues
Percent of Internet users indicating item is the “most important” action

Coupons For Future Purchase 4% Free Shipping 5% Quick Resolution To The Problem 71%

A Full Refund 16%

Other 4%
Source: Know ledge Systems & Research, 3/2001

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Less than one-in-five (18%) click-and-mortar retailers are currently capable of accessing a customer’s consolidated account activity across both on- and off-line channels, according to Jupiter Media Metrix. Customers, however, would almost universally welcome such integration, with 95% of online buyers indicating they would return online purchases to offline stores at least occasionally and 43% would always return online purchases to stores. A separate survey by Jupiter also found that 45% of Internet users have visited a retailer’s website to research a product before purchasing it in the same company’s store.

4.18 Top Customer Service Features For Multi-Channel Retailer Sites
Percent of online buyers

Return Online Purchases At Retail Store

83%

Pick-up Online Purchases At Retail Store

59%

Ability Of In-store Staff To View Online Account Details

67%

0%

20%

40%

60%

80%

100%

Source: Jupiter Media Metrix, 3/2001

4.19 Leading Consumer Barriers To Buying Online
Percent of Internet users

2001
Shipping Costs Too High Can't Try On For Fit Inappropriate For Large Items Item Is Very High Cost Credit Card Security

2000 42% 52% 38% 40% 37% 30% 24% 30% 44% 27%

0%

10%

20%

30%

40%

50%

60%

Source: Ernst & Young

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Estimates of the rate at which online shopping carts are abandoned vary widely between researchers, from a low of 25% from Accenture to a high of 78% from Ernst & Young. Jupiter Media Metrix estimates the average abandonment rate at approximately 66%, however, the company also reports that the rate varies significantly between sites. An analysis conducted earlier this year (2001) found that the abandonment rate varied from 25% at flower and gift retailer FTD.com to 62% at the health and beauty products retailer drugstore.com. Jupiter believes that the abandonment rate has been declining as less trustworthy and poorly designed sites have gone out of business while the surviving retailers have worked to improve their customer service and website usability.

4.20 Online Shopping Cart Abandonment Rates
Percent of online carts abandoned before a purchase is completed

Ernst & Young (1) Yankee Group (1) Vividence (2) Greenfield Online (1) Jupiter Media Metrix (2) Forrester Research (1) Boston Consulting (1) Zona Research (1) AT Kearny (1) Accenture (1) 0% 20% 25% 40% 60% 53% 50% 46%

78% 77% 75% 67% 66% 65%

80%

100%

(1) 2000 estimate (2) 2001 estimate Source: As Noted

4.21 Shopping Cart Abandonment Rates For Selected Retailers
Percent of online carts abandoned before a purchase is completed

Drugstore.com Travelocity.com Expedia Egghead.com Buy.com FTD.com 0% 10% 20% 25% 30% 40% 50% 60% 38% 44% 44% 55%

62%

70%

Source: Jupiter Media Metrix, 1/2001-3/2001

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Among the top reasons given by consumers for abandoning an online shopping cart are high shipping costs and “just comparison shopping,” according to an October 2001 survey by Vividence Corp. Jupiter found that 63% of consumers have abandoned an online purchase because of high shipping costs and 21% have done so to avoid paying state sales taxes. As a side note, among the online buyers surveyed by Jupiter, 46% believed that shipping costs should be based on the weight of packages while only 10% thought that price or order size should drive shipping costs. Almost three-in-four (73%) consumers evaluate the total price of products, including shipping costs, before making an online purchase. The majority of individuals who abandon shopping carts ultimately complete a purchase, however, less than one-in-five (18%) make their purchase at the site where they abandoned the cart, according to Ernst & Young. One-in-four (26%) complete their purchase with a competitor and 17% purchase the item(s) offline while 39% do not purchase the item(s) at all.

4.22 Top Reasons U.S. Internet Users Abandon Shopping Carts
Percent of shoppers who have abandoned an online cart

High Shipping Costs Just Comparison Shopping Changed Mind Saving Items For Later Purchase Total Cost Is Too High Checkout Process Is Too Long Checkout Requests Too Much Personal Information Site Requires Registration Before Purchase Site Is Unstable Or Unreliable Checkout Process Is Confusing

72% 61% 56% 51% 43% 41% 35% 34% 31% 27% 0% 20% 40% 60% 80% 100%

Source: Vividence Corp., 10/2001

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4.23 What Happens After A Shopping Cart Is Abandoned
Percent of shoppers who have abandoned an online cart

Purchased Item Offline 17%

Purchased From Site At A Later Date 18%

Purchased Item From Competitor 26%

Did Not Purchase Item At All 39%
Source: Ernst & Young, 2000

4.24 Reasons For Not Purchasing Goods And Services Online
Percent of shoppers who have NOT purchased online

Don't want to give credit card details/Security concerns It's more secure buying goods/services in a store Easier/more fun to buy from a store

37% 23% 22% 13% 11% 8% 8% 5% 3% 2% 26% 0% 10% 20% 30% 40% 50%

You don’t know what you get Don't trust online brands/Lack of trustworthiness Time to deliver goods is too long/Other delivery problems Prices too high/Expect lower prices on the Internet It's too difficult/Lack of knowledge Products/services on the Internet not very interesting Didn't pass the credit check

Other reasons

Source: Taylor Nelson Sofres, 4/2001

Consumer concerns about security remain the top reasons why Internet users who are not yet online buyers hesitate about taking the plunge. More than onethird of non-buyers are concerned about providing their credit card details over the Internet while one-in-ten are concerned about online fraud in general and a lack of trust in online brands. The Internet Commerce Briefing | 56

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4.25 Why Internet Users Wait To Make The First Online Purchase
Percent of Internet users

Concerned About Giving A Credit Card Number No Products Or Services That Are Of Interest Concerned About Deception Don't Know Where To Find What I Wanted Never Thought About It Didn't Know It Was Possible To Buy On The Internet Didn't Use Internet Much At First Didn't Have A Credit Card Not Sure It Was Cheaper Other

28.4% 12.0% 9.8% 8.6% 6.8% 4.0% 2.6% 2.1% 1.0% 24.8% 0% 10% 20% 30% 40% 50%

Source: UCLA Internet Report, 7/2001

The majority (51.3%) of consumers’ purchases during 2000 -- both offline and online -- were paid for with a check, according to data from Visa USA, while onequarter (24.5%) was paid for with a credit card. General purpose cards such as Visa, MasterCard, and American Express were used for 20.4% of expenditures while proprietary cards -- department store, gasoline, etc. -- were used for another 4.1%. Almost 18% of expenditures were paid for by cash and 7.6% by “other” means, such as money orders.

4.26 How Consumers Pay For Purchases
Percent of all personal consumption expenditures during 2000

Credit Cards 20% Checks 51% Proprietary Cards 4% Cash 17%

Other 8%

Source: Visa USA, Nilson Report, DRI; 2000

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At the end of 2000, Visa USA reported that fraud losses for all types of credit card transactions -- including both card present and card not present transactions -- was $0.06 per $100.00. The fraud rate among card not present transactions only -- which includes all e-commerce activity -- during the same period was somewhat more than twice as high at $0.15 per $100.00. The issue of fraud, however, cuts both ways, according to Boston Consulting Group. The company reports that by 2000, more than one-in-ten (11%) online buyers had at some point ordered and paid for products that they never received, which was up from 6% in 1999.

4.27 Losses From Online Fraud At Internet Commerce Sites (2000)
Percent of companies surveyed

Comparable Losses in Same-Company Offline Channels (N=360) Sites That Accept Online Orders (N=432) No Fraud Losses Under 2% of Sales 2% - 5% of Sales 7% 4% 2% 2% 2% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 28% 20% 61% 72%

6% - 10% of Sales Over 10% of Sales

Source: ActivMedia Research

4.28 Online Fraud At Internet Commerce Sites
Percent of companies surveyed

Occurs, but with minimal impact on business 11%

Somewhat of a problem, deal with it regularly 2%

A substantial problem 1%

Not a problem 86%
Source: ActivMedia Research

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Section V.
Privacy and Security Issues Among Internet Users

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Privacy remains a significant issue among many Internet users, with 78% of respondents in a June 2001 survey by Gallup indicating that they were either somewhat concerned or very concerned about the privacy of both the information they provided to websites as well as their activities while they were online. Approximately one-half of Internet users surveyed by Arthur Andersen in March 2001 expressed some level of concern about websites having access to their address and online purchasing history. The use of demographic information was less problematic, according to Arthur Andersen, with approximately onequarter to one-third of respondents expressing concerns about the sharing of their age, size, and gender. The Gallup survey found that 65% of respondents were either somewhat concerned or very concerned about providing their home phone number, 53% mentioned their age, and 51% mentioned their address. Less than one-in-four (22%) were concerned about sharing their e-mail address, according to Gallup.

5.01 Concern About Privacy Of Personal Information Provided Over The Internet
Percent of Internet users

Very Concerned 28%

Somewhat Concerned 50%

No Answer 1% Not At All Concerned 3%

Not Too Concerned 18%

Source: Gallup, June 2001

5.02 Concern About Website Access To Specific Personal Information
Percent of online buyers

Very Concerned
My Address

Somewhat Concerned 37%

14% 28% 14% 19% 8% 19% 7% 17% 7% 0% 10% 20% 30% 40% 50%

My Purchase History

My Age

My Size

My Gender

Source: Arthur Anderson, 3/2001

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Although many Internet users are concerned about privacy and the security of their personal information, an increasing number are willing to provide varying levels of information in return for value-added services. CyberDialogue reports that 51% of the online consumers it has surveyed either have no opinion about one website sharing certain information with another website or they believe that such sharing represents an effort to improve the relevancy and usefulness of the interactive experience; the balance of respondents, however, viewed any sharing of their personal information as an invasion of privacy. Internet users were most receptive to the sharing of anonymous information related to their interests and to the ads or promotions they’ve responded to. As the nature of the information becomes more personal -- such as name, address, income -- the level of support among consumers for sharing declines rapidly.

5.03 Personal Information Internet Users Are Willing To Share
Percent of Internet users
Name Education Age Hobbies/Special Interests Household Income Salary Credit Card Number

88% 88% 86% 83% 59% 41% 13% 0% 20% 40% 60% 80% 100%

Source: CyberDialogue, 2000

5.04 Personal Information A Site Can Share In Return For Customized Content
Percent of Internet users
Promotions I Respond To Ads I Click On Attitudes About The Internet Products I Buy On The Site My Hobbies/Special Interests My Age My Level Of Education My Name My Mailing Address My Household Income My Salary My Credit Card Number None Of The Above

56% 52% 50% 48% 47% 41% 39% 30% 17% 14% 13% 1% 29% 0% 20% 40% 60% 80%

Source: CyberDialogue, 2000

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A March 2001 survey of online buyers by Jupiter Media Metrix found that many were willing to register with retailers and share personal information such as their e-mail address. The survey also found that: • • • • 70% would consider registering to receive e-mails for new products and special offers 68% would consider registering prior to making a purchase 50% would consider registering in order to store personal information on a site for future use 41% would consider registering in order to receive physical mail

Internet users are most receptive to sharing their personal information with a website if they have the ability to control how it is used and determine when it can be shared with a third party, according to IDC. A November 2000 survey of Internet users by PriceWaterhouseCoopers found that almost two-thirds (60%) of respondents would shop online more frequently if they were certain that retailers would not use their personal information; 40% said they would make more online purchases if they knew how the information they provided at checkout was being used. Respondents also agreed almost unanimously that retailers should ask customers for their permission before using or sharing any personal information.

5.05 What Influences Internet Users To Share Information
Percent of Internet users

Ability to control conditions under which personal information is shared Website guarantees information will not be shared Ability to decide with whom website's personal information is shared Ability to view and edit website's collected personal information Perceived personal nature of information requested Frequency of respondents' visits Website is well-known brand name Website asks few questions

84% 83% 83% 77% 75% 71% 70% 65% 0% 20% 40% 60% 80% 100%

Source: International Data Corp, 2000

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5.06 Internet Users’ Attitudes About Protecting Their Online Privacy
Percent of Internet users

Retail websites are responsible for asking me before sharing any personal information with other firms Retail websites are responsible for asking me before using any of my personal information It concerns me that retail websites store my credit card information online for future use I shop from a few retail websites to minimize overall access to my personal information Retail websites do not ask my permission before sharing my information with other firms Retail websites do not ask my permission before using my personal information I always turn off cookies I prefer to pay for my online purchases via 1-800 number rather than give my credit card number online

97% 95%

65% 48% 44% 42% 29% 28% 0% 20% 40% 60% 80% 100%

Source: Pricew aterhouseCoopers, 2000

Harris Interactive found that one-half of online users felt that they did not have an appropriate level of control over how their personal information was collected and used while 43% felt that companies had no incentive to protect consumer privacy. Only 39% of respondents in the May 2001 survey felt that companies collected and handled personal information in a proper and confidential manner. More than two-thirds (70%), however, believe that the existing laws and company privacy policies provide an adequate level of privacy, according to Harris.

5.07 Consumer Fears About Internet Crime
Percent of Internet users

Women

50%

Men

35%

High School Graduates

49%

College Graduates

31%

0%

10%

20%

30%

40%

50%

60%

Source: Pew Internet & American Lif e Project, 2/2001

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5.08 Concern About Misuse Of Credit Card Information Provided Over The Internet
Percent of Internet users

Not Too Concerned 15% Not Concerned 1% No Answer 2%

Somewhat Concerned 36%

Very Concerned 46%

Source: Gallup, 6/2001

There is little difference between Internet users and those who are not yet online when it comes to concerns about the misuse of credit card information, according to a February 2001 survey by the Pew Internet & American Life Project. The organization found that 68% of Internet users were concerned about the issue compared to 70% of non-users; overall, 69% of adults in the U.S. expressed at least some concern. Women were more likely than men to be “very concerned” about the misuse of credit card information -- as well as Internet crime in general (see 5.07).

5.09 Concern About Misuse Of Credit Card Information Provided Over The Internet By Age And By Gender
Percent of individuals who are “very concerned”

Women Men Age 18-29 Age 30-49 Age 50-64 Age 65+ 0% 20% 40% 60%

72% 65% 60% 72% 73% 69% 80% 100%

Source: Pew Internet & American Lif e Project, 2/2001

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Although 97% of Internet users surveyed by Gallup expressed varying levels of concern about providing their credit card information over the Internet, onethird view the risks as acceptable and are either somewhat or very comfortable doing so. An August 2001 survey by the Cultural Access Group found that the number of African-Americans who were uncomfortable providing their credit card information online was three times that of the general Internet population and the number of Hispanic-Americans with the same attitude was double that of the general Internet population.

5.10 Comfort Level Providing Credit Card Information Over The Internet
Percent of Internet users

Not Too Comfortable 30% Somewhat Comfortable 28%

Not Comfortable 37%

Very Comfortable 5%
Source: Gallup, 6/2001

5.11 Comfort Level Providing Credit Card Information Over The Internet By Ethnicity
Percent of Internet users within each group

Somewhat/Very Comfortable 100% 80% 60% 39% 40% 20% 0% African-Americans Hispanic-Americans

Not Comfortable

76%

49%

47% 38% 16%

All Internet Users

Source: Cultural Access Group, 8/2001

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Section VI.
E-commerce and the Holidays

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Nielsen/NetRatings predicts that almost two-thirds (60%) of U.S. Internet users will go online to shop for -- but not necessarily buy -- at least some of their Holiday 2001 gifts. Approximately one-in-three online households will actually make at least some of their Holiday 2001 purchases over the Internet, according to data from both Forrester Research and Jupiter Media Metrix, compared to between 28-30% during last year’s Holiday shopping period. IDC predicts that 42% of Internet users will make at least one online purchase during Q4-2001. The average forecast for the growth in online retail sales during the Q4/Holiday 2001 period is 25%. BizRate.com reported that over the 2001 Thanksgiving weekend -- traditionally the busiest shopping weekend of the year and the kick-off for the Holiday shopping period -- online sales totaled $395 million, representing a 26% increase over the comparable period in 2000. In contrast, mall traffic through Saturday of that same weekend was down 7.5% from 2000, according to RCT Systems’ National Retail Traffic Index. During October, AOL reports that its own members collectively spent $2.7 billion online, representing a 80% increase over October 2000.

6.01 U.S. Online Retail Sales: Q4/Holiday Period (2000/2001)
Billions of dollars

2001 $17.50 bn $12.40 bn $11.90 bn $11.86 bn $11.55 bn $11.00 bn $9.90 bn $9.50 bn $6.3 bn

2000 $12.00 bn -$10.80 bn $9.13 bn $9.24 bn $10.00 bn $6.90 bn $8.90 bn $4.80 bn

Pct. Change 46% -11% 30% 25% 10% 43% 7% 31%

Period Covered Q-4 Q-4 Nov. - Dec. Q-4 Q-4 5 wks before Christmas Nov. - Dec. Q-4 11/19 - 12/26

Source IDC (1) ACNielsen (1)(2) Jupiter Media Metrix (1) GartnerG2 (3) BizRate.com Forrester Research (1) Nielsen/NetRatings Yankee Group BizRate.com

(1) Includes travel expenditures. (2) Holiday-related spending only; total Q-4 2001 spending forecast is $17.5 bn. (3) Includes Canada.

6.02 U.S. Online Retail Buyers: Q4/Holiday Period (2000/2001)
Millions of individuals

2001 109 mn 106 mn 69 mn 59 mn 52 mn 49 mn 46 mn

2000 -85 mn ---43 mn 36 mn

Pct. Change -27% ---14% 28%

Period Covered Nov. - Dec. Nov. - Dec. Q-4 Q-4 Nov. - Dec. 5 wks before Christmas Nov. - Dec.

Source Boston Consulting Group (1) Nielsen/NetRatings (1) ACNielsen (2) IDC Advertising.com (3) Forrester Research (4) Jupiter Media Metrix

(1) Online shoppers but not necessarily buyers. (2) Based on estimate of 60% of Internet users. (3) Based on estimate of 25% of consumers. (4) Based on 16.6 mn households for 2001.

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6.03 What U.S. Internet Users Do Online During The Holidays
Percent of Internet users

Online Activity Send e-mails to relatives and friends to discuss holidays and make plans Send e-greeting cards to friends and family Look for gift ideas Compare prices of gifts Get information on crafts, recipes, and ideas for celebrations Purchase gifts online

Pct. of Internet Users 53% 32% 45% 32% 24% 24%

Source: Pew Internet & American Life Project, 2000

6.04 Where Do U.S. Consumers Plan To Shop For Holiday 2001
Percent of U.S. adults

Traditional Department Stores Discount Department Store

76.5%

71.3%

Specialty Retailers

68.9%

Catalogs/Mail Order

37.2%

0%

20%

40%

60%

80%

100%

Source: National Retail Federation, 10/2001

6.05 Channel Allocation Of U.S. Consumers’ Holiday Shopping Budget (2000/2001)
Percent of U.S. adults’ total holiday expenditures

2000

2001 79%

Stores 80%

15% Online 13%

6% Catalogs 7% 0% 20% 40% 60% 80% 100%

Source: Goldman Sachs, Harris Interactive, Nielsen/NetRatings, 11/2001

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6.06 How Long Holiday 2000 Online Buyers Have Shopped Online
Percent of online buyers

First Holiday Shopped Online 12% Started Shopping Online Since Last Holiday 15% Shopped Online Last Holiday 8%

Shopped Online More Than One Year 65%

Source: Cognitiative.com, Q1-2001

A majority of online buyers during the Holiday 2001 shopping season will be women, by a margin of 53% to 47%, according to Jupiter Media Metrix. This skew towards women is down slightly from 2000, but is still a significant shift from Holiday 1999 when men accounted for 61% of online buyers. Although women are expected to account for a majority of online buyers during Holiday 2001, men are more likely to buy at least some of their gifts online. NextCard expects two-thirds of male Internet users to make one or more purchases online during Holiday 2001 compared with 56% of female Internet users.

6.07 U.S. Online Holiday Buyers By Gender (1998/2000/2001)
Percent of online buyers

Men 39% 1999 (2)

Women

61% 55% 2000 (2) 45% 53% 2001 (1) 47% 0% 20% 40% 60% 80%

(1) Jupiter Media Metrix; (2) BizRate.com

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The majority (51%) of Holiday 2001 online buyers will spend 25% or less of their gift budgets at online storefronts, according to Jupiter Media Metrix, which is roughly comparable to the spending pattern in 2000. Boston Consulting Group estimates that online buyers will spend an average 27% of their Holiday budgets online in 2001, which is up from 22% for 2000. Among veteran Internet users, IDC predicts that buyers will spend approximately 27% of their Holiday 2001 budgets online while those who are new to the Internet will allocate about 23% to online purchases.

6.08 Share Of Holiday 2001 Gift Budget U.S. Consumers Plan To Spend Online
Percent of online buyers

Less Than 10% 14% More Than 90% 1% 76% To 90% 4% 51% To 75% 13% 10% To 25% 37%

26% To 50% 31%
Source: Jupiter Media Metrix, 11/2001

6.09 Share Of Holiday 2000 Gift Budget U.S. Consumers Spent Online
Percent of online buyers

75% Or More 9%

Less Than 10% 32%

51% To 74% 10%

31% To 50% 19%

10% To 30% 30%

Source: BIGresearch, 3/2001

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Almost three-in-four (74%) online buyers will spend at least $100 during Holiday 2001, according to Advertising.com, and one-in-four (25%) will spend more than $300. Harris Interactive predicts that the average online buyer this year will spend $276 on Holiday purchases, up from $179 for the previous year. IDC predicts that online spending per buyer for the fourth-quarter of 2001 will be $297.

6.10 Holiday 2001 Online Spending Plans Among U.S. Internet Users
Percent of online buyers

> $300 25% < $100 26%

$100 To $300 49%

Source: Advertising.com, 2001

6.11 Share Of U.S. Consumers Who Plan To Spend The Same Or More Online During Holiday 2001
Percent of Holiday 2001 online buyers

GartnerG2 Harris Interactive Advertising.com Boston Consulting Wirthlin Worldwide Vividence Accenture 0% 20% 40% 76% 75% 68% 61% 56% 56% 60% 80%

86%

100%

Source: As Noted, 2001

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Women are generally more likely to be early bird shoppers, according to NextCard, which expects 41% of them to begin their online Holiday shopping prior st to November 1 compared to only 25% of men. Among the biggest procrastinators are men aged 18 to 34, with 19% planning to wait until December to begin their online shopping.

6.12 When U.S. Consumers Plan To Begin Shopping For Holiday 2001
Percent of online buyers

After 11/30 14%

Prior To 11/1 33%

Between 11/15 And 11/30 22%

Between 11/1 And 11/14 31%
Source: NextCard, 10/2001

6.13 Growth Of U.S. Online Holiday Shopping (1998-2000)
Percent of Internet users shopping online

Q4-2000

72%

Q4-1999

69%

Q4-1998

65%

0%

20%

40%

60%

80%

100%

Source: Greenfield Online, 3/2001

Almost three-in-four (72%) Internet users shopped for at least some of their gifts online for Holiday 2000, Greenfield Online while America Online estimates that 75% of its own members bought something online during the same period. The likelihood that an individual will do at least part of his or her Holiday shopping online is, not surprisingly, highly correlated with household income. Greenfield estimates that 81% of households with incomes of $50,000 or more made one or more online purchases for Holiday 2000 compared to 64% of households earning less than $50,000.

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6.14 U.S. Online Holiday Shoppers And Buyers (1999/2000)
Percent of Internet users

1999

2000

74% Buyers 67%

80% Shoppers 69%

0%

20%

40%

60%

80%

100%

Source: Pricew aterhouseCoopers, 1/2001

Nielsen/NetRatings estimates that 36 million individuals in the U.S. made at least one purchase online for Holiday 2000 and that 85 million shopped online. The company also estimates that for each dollar spent online, an additional $1.97 was spent offline as a result of online shopping trips. The average online order during the Holiday 2000 shopping season was $114, according to BizRate.com, which was up 15% over 1999. During the kick-off weekend for the Holiday 2001 shopping season -- Thanksgiving weekend, 11/23 through 11/25 -- BizRate.com reports that the average online order was $131, representing a 15% increase over 2000.

6.15 Average U.S. Online Order Value For Holiday 1999/2000
In dollars

2000

$114

1999

$99

$0

$50

$100

$150

$200

Source: BizRate.com, 1/2001

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6.16 Top 5 Product Categories By Holiday Spending (Nov./Dec. 2000)
Millions of dollars

Apparel

$2,445

Books/Music/Videos

$1,696

Auctions

$1,364

Toys

$1,053

Computer Hardware $0 $500

$973 $1,000 $1,500 $2,000 $2,500 $3,000

Source: Nielsen/NetRatings, 10/2001

As is the case during the rest of the year, the most popular product categories among Holiday shoppers are books, music/videos/DVDs, and apparel. Product categories which jump the most in popularity among online buyers during the Q4/Holiday shopping period include toys and games, gift certificates, food and wine, and home décor items.

6.17 What U.S. Consumers Plan To Buy Online For Holiday 2001
Percent of online buyers

Product Category Books CDs/Videos Toys/Games Apparel & Accessories Gift Certificates Home/Garden Items (1) Consumer Electronics Computers/Software Food/Wine Beauty/Health Items Jewelry

Jupiter Media Metrix 40% 28% / 20% 29% 30% 18% 9% 13% 18% 11% / 4% -13%

Advertising.com -36% / -34% 32% -23% 39% ---9%

NextCard 48% 41% 41% 36% 24% 24% 17% 17% 9% 8% --

(1) Jupiter Media Metrix and Advertising.com estimates are for housewares only.

6.18 Top 10 BizRate.com Holiday 2001 Gift Product Searches
Searches conducted Thanksgiving weekend - 11/23 through 11/25

1. G.I. Joe 2. Fuji FinePix 2600 Zoom 3. Canon PowerShot G2 4. Nikon Coolpix 5000 5. Minolta Dimage 7

6. Nikon Coolpix 885 7. Sony Cybershot DSC-F707 8. RCA 2.3 MP Digital Camera 9. Sony Cybershot DSC-P5 10. Olympus Camedia C-700
Source: BizRate.com, 11/2001

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6.19 What U.S. Consumers Plan To Buy Online For Holiday 2001
Percent of online buyers

Books Clothing And Shoes Toys Music Videos Gift Certificates Computers And Accessories Apparel Accessories Event Tickets Bed And Bath Software Fragrance/Cosmetics Flowers Consumer Electronics Jewelry/Watches Food Home Furnishings Video Games Sporting Goods Pet Supplies Housewares And Appliances Kitchen Tools And Hardware Wine And Spirits Cellular Phones PDAs 0% 20% 18% 18% 15% 14% 14% 14% 14% 13% 13% 13% 11% 10% 10% 9% 9% 9% 7% 6% 4% 3% 2% 10% 20% 30% 30% 29% 28%

40%

40%

50%

Source: Jupiter Media Metrix, 10/2001

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Almost two-thirds (65%) of online shoppers looking for Holiday gift ideas used search engines for assistance, according to Accenture, and a majority (55%) already had some gift ideas in mind before visiting retailer websites. The company also reports that the gift ideas of almost one-in-four (22%) Holiday 2000 online shoppers were influenced by banner ads and by word of mouth.

6.20 Sources Of Holiday 2000 Gift Ideas For Online Shoppers
Percent of online shoppers

Use Search Engines To Find Retail Sites Have Gift Ideas In Mind

65%

55%

Randomly Surf Internet

38%

0%

20%

40%

60%

80%

Source: Accenture, 2000

6.21 What Influences Holiday 2000 Online Shoppers
Percent of online shoppers

Banner Ads

22%

Word Of Mouth

22%

TV And Billboards

13%

News Reports

6%

0%

5%

10%

15%

20%

25%

Source: Accenture, 2000

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6.22 Why U.S. Internet Users Plan To Shop Online For Holiday 2001
Percent of online buyers

Ability To Shop When I Want Avoid The Crowds Saves Time Can Send Gifts To Friends/Family Saves Money 0% 14% 11% 10% 8% 10% 20% 30% 40%

47%

50%

60%

Source: NextCard, 10/2001

6.23 Why U.S. Internet Users Shopped Online For Holiday 2000
Percent of online buyers

Cognitiative.com (Q1-2001) Pew Research Center (2000) Shop At Unusual N/A Hours N/A Avoid Crowds/Traffic N/A

BIGresearch (3/2001)

72% 72%

72% N/A Convenient 66% 71% 79% Save Time 27% 70% 58% Easier N/A Compare 30% 49% 51% Saved Money N/A Better Selection 28% Better Product N/A Information N/A 0% 20% 40% 31% 47% 41% 51%

20%

40%

60%

80%

100%

Source: As noted

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Harris Interactive and the Boston Consulting Group report that while Holiday shoppers may visit a variety of online storefronts, they actually buy from only a small number of sites. From Holiday 1999 to 2000, the companies estimate that the number of sites patronized by online buyers declined from an average of slightly more than two to 1.7. More than one-in-four (28%) online buyers purchased something from Amazon.com during Holiday 2000, according to Gartner Group, which is more than twice as many as the closest competitor, eBay at 13%. An October 2001 survey of online buyers by NextCard found that almost one-half (46%) planned to spend a portion of their Holiday 2001 budget at Amazon.com, followed by eBay (24%) and BarnesandNoble.com (21%). The remaining top 5 sites among Holiday shoppers include WalMart.com, JCPenney.com, and Target.com.

6.24 Number Of Websites Patronized By Holiday 2000 Shoppers
Percent of online buyers

2000

1999 2.4 1.7 1.9 1.7 2.2 1.7

Apparel Buyers

Electronics Buyers

Toy Buyers

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Source: Harris Interactive, Boston Consulting Group, 2001

6.25 Where Online Buyers Shopped For Holiday 2000
Percent of online buyers who ordered from company

Amazon.com eBay.com eToys.com BarnesandNoble.com Buy.com JCPenney.com EddieBauer.com ToysRus.com WalMart.com LLBean.com Spiegel.com Gap.com VictoriasSecret.com ZanyBrainy.com 0% 5% 4% 4% 4% 3% 3% 2% 2% 2% 1% 1% 10% 20% 8% 13%

28%

30%

40%

Source: Gartner Group, 2/2001

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Boston Consulting Group reports that 82% of online buyers were generally satisfied with the experience during Holiday 2000 compared with 76% the previous year. The number of buyers who were dissatisfied declined by 40% between 1999 and 2000, from 5% to 3%. A similar survey conducted by NPD Group found that 57% of online shoppers in 2000 were “very or extremely satisfied,” 35% were “somewhat satisfied” and only 8% were “not too/not at all satisfied.” Buyers were generally more satisfied than shoppers with the online experience, according to PriceWaterhouseCoopers. Almost four-in-five (79%) buyers were completely satisfied compared to 55% of shoppers. The most common complaints among online Holiday shoppers/buyers included items that were out of stock, unable to find a particular item, and websites that were too slow or temporarily unavailable (see 6.28).

6.26 U.S. Consumer Satisfaction With Online Holiday Shopping Experience (2000)
Percent of Internet users within each group

Shoppers Satisfied With All Sites Satisfied With Some, Dissatisfied With Others Dissatisfied With All Sites 0% 3% 0% 20% 40% 60% 21% 42%

Buyers 79% 55%

80%

100%

Source: Pricew aterhouseCoopers, 1/2001

6.27 U.S. Consumer Satisfaction With Online Holiday Shopping Experience (1999/2000)
Percent of online buyers

2000 Very Satisfied Satisfied Neutral Dissatisfied Very Dissatisfied 0% 3% 2% 2% 1% 10% 20% 30% 19% 15% 27%

1999

38% 49% 44%

40%

50%

60%

Source: Harris Interactive/Boston Consulting Group, 2001

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6.28 Difficulties Experienced By Online Shoppers During Holiday 2000
Percent of online shoppers/buyers

NPD Group

Harris Interactive/Boston Consulting Group 44% 37% 22% 31% 12% 23%

No Difficulties Item Out Of Stock Site Too Slow Or Temporarily Down Could Not Find Item Item Received Late Did Not Receive Item Poor Customer Service Site Out Of Business Order Received Incomplete N/A 6% N/A 5% 8% N/A 0% 10% 20% 30% N/A 14% 7% 6% 7% 21%

40%

50%

Source: As noted, 2001

6.29 Barriers To U.S. Internet Users Shopping Online For Holiday 2000
Percent of online buyers

Prefer To See Gift In Store First Concerned About Security Of Credit Card Or Personal Details Can Get Better Prices In Stores Or Catalogs

85% 79% 52% 45% 41% 0% 20% 40% 60% 80% 100%

Concerned Gifts Won't Arrive On Time

Shopping Online Is Too Confusing

Source: Pew Research Center, 2000

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6.30 U.S. Q4 Retail Sales Growth (1996-2000)
Percent change year over year, excluding auto sales and parts (not seasonally adjusted)

Q4-2000

5.01%

Q4-1999

8.82%

Q4-1998

5.26%

Q4-1997

3.97%

Q4-1996 0% 2% 4%

5.74% 6% 8% 10%

U.S. Census Bureau, Economics & Statistics Administration, 2001

6.31 U.S. Q4 Share Of Annual Retail Sales (1996-2000)
Percent change year over year, excluding auto sales and parts (not seasonally adjusted)

Q4-2000

27.9%

Q4-1999

28.7%

Q4-1998

28.4%

Q4-1997

28.3%

Q4-1996 0% 10% 20%

28.4% 30% 40%

U.S. Census Bureau, Economics & Statistics Administration, 2001

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6.32 Monthly Share Of U.S. Retail Sales (2000)
Percent of total sales for calendar 2000, excluding auto sales and parts

20% 16% 8.47% 8.35% 8.51% 8.17% 8.13% 8.14% 8.29% 12% 8% 4% 0%
February May January July August September November October December March April June

7.05%

7.32%

U.S. Census Bureau, Economics & Statistics Administration, 2001

6.33 Growth In U.S. Retail Chain Store Holiday Sales (1996-2001)
Percent change year over year

7.94%

1996 1997 1998 1999 2000 2001 (1) 0% 1% 2% 3% 2.4%

3.1% 4.5% 5.1% 5.4%

4.0% 4% 5% 6%

Source: Bank of Tokyo-Mitsubishi, 9/2001
(1) Forecast

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8.82%

10.81%

Business-to-Consumer E-Commerce Report

6.34 Monthly Share Of U.S. Online Retail Sales (2000)
Percent of total online sales for calendar 2000

20% 13.24% 8.75% 8.32% 5.77% 4.88% 6.24% 6.83% 6.99% 8.34% 8.74% 9.14% September October 2001 2000 $268.33 October $264.86 $285.34 November $292.28 $308.44 December N/A $0 $100 $200 $300 $400 $500 November March June April February January August May July 16% 12% 8% 4% 0% December 12.77%

Source: Forrester Research, 2001

6.35 Average Amount Spent Online In The U.S. During Q4-2000
In dollars per household buying online

Source: Forrester Research, 11/2001

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6.36 Median Holiday 2000 Gift Budget Among U.S. Youths
In dollars per youth each group

Age Group 8 to 9 years old 10 to 12 years old 13 to 15 years old 16 to 17 years old 18 to 21 years old

-----------------Amount Spent----------------Girls Boys $ 16.08 $ 14.92 $ 33.70 $ 26.64 $ 47.75 $ 34.44 $ 97.20 $ 67.29 $156.03 $103.53
Source: Harris Interactive, 1/2001

Harris Interactive estimates that American youths collectively spent approximately $2.4 billion on- and offline purchasing gifts for other people during the Holiday 2000 period. Among those buying gifts online, girls generally spent more than boys and the amount spent generally increased along with age. Youths between 8 and 9 years old who completed online purchases spent an average of $15.00 while young adults between 18 and 21 spent an average of slightly less than $130.00, according to the company.

6.37 Holiday 2000 Online Spending By U.S. Youths
Percent of Holiday 2000 purchases completed online

Girls 3% 2% 3% 6% 2% 2% 6% 3%

Boys

8 To 9 Years Old

10 To 12 Years Old

13 To 15 Years Old

16 To 17 Years Old

18 To 21 Years Old

18% 7% 0% 5% 10% 15% 20%

Source: Harris Interactive, 2001

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6.38 Average Q-4 Online Spending Per U.S. Household Per Month By Category (2000/2001)
In dollars per household buying online

Category Small Ticket Items: Software Books Music Videos Office Supplies Apparel Footwear Jewelry Flowers Linens/Home Décor Health & Beauty Small Appliances Toys/Video Games Sporting Goods Tools & Hardware Garden Supplies Big Ticket Items: Computer Hardware Consumer Electronics Appliances Furniture Food/Beverages Air Tickets Car Rental Hotel Reservations Other Average - 2000 Average - 2001

Oct. $42.02 $33.83 $30.29 $35.97 $53.01 $64.76 $60.79 $63.57 $47.82 $70.04 $37.04 $60.05 $51.96 $73.43 $61.58 $50.83

2000 Nov. $53.48 $39.97 $33.68 $30.86 $83.28 $76.60 $63.78 $45.78 $43.24 $61.94 $37.98 $87.42 $73.95 $81.98 $63.62 $30.03

2001 Dec. $44.27 $36.51 $32.13 $38.51 $61.86 $85.66 $64.31 $76.79 $57.57 $70.63 $40.15 $77.64 $75.69 $88.44 $68.65 $41.20 Oct. $43.34 $38.58 $33.42 $31.09 $57.30 $69.69 $65.92 $82.04 $59.20 $62.98 $39.94 $73.22 $49.97 $72.28 $77.29 $58.26 Nov. $48.35 $36.52 $32.97 $34.22 $57.34 $76.07 $58.62 $73.90 $46.83 $58.68 $39.45 $62.58 $66.98 $67.08 $64.70 $31.73

$191.78 $138.82 $451.90 $243.02 $74.89 $330.71 $186.53 $228.84 $105.27 $268.33 --

$216.98 $136.41 $161.13 $153.70 $88.98 $353.90 $219.68 $223.74 $77.95 $285.34 --

$190.37 $170.67 $374.95 $181.78 $100.72 $338.47 $193.74 $223.31 $130.53 $308.44 --

$188.80 $140.72 $531.93 $193.16 $80.26 $285.53 $173.03 $197.93 $105.30 -$264.86

$194.12 $161.01 $236.48 $168.72 $95.31 $313.56 $157.76 $199.99 $120.33 -$293.28

Source: Forrester Research, 12/2001

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Toys and video games accounted for the largest share (8.7%) of online retail spending among small ticket items during the fourth-quarter of 2000, followed by apparel (7.5%) , books (5.2%), and music (3.7%). The top five categories combined accounted for approximately one-quarter (28.4%) of total small ticket online retail sales during the period. Small ticket items collectively accounted for 48% of total online retail sales while big ticket items (see 6.41) accounted for 52%.

6.39 U.S. Q4 Online Retail Spending By Category: Small Ticket Items (2000)
Percent of total Q4 online spending across 25 categories (see 6.41 for remaining categories)

Toys/Video Games Apparel Books Music Software Health & Beauty Videos Office Supplies Linens & Home Décor Sporting Goods Jewelry Small Appliances Footwear Flowers Tools & Hardware Garden Supplies 0% 3.64% 3.35% 2.82% 2.56% 2.47% 2.10% 2.07% 1.90% 1.59% 1.50% 1.40% 1.03% 0.43% 2% 4% 6% 8% 5.15% 7.54%

8.68%

10%

Source: Forrester Research, 2001

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More than one-half of all online sales for the entire 2000 calendar year were generated during the fourth-quarter in the toys/video games and linens/home décor product categories. Other products whose online sales appear highly dependent upon fourth-quarter activity are apparel, small appliances, and sporting goods.

6.40 Q4 Share Of Total Online Retail Spending By Category: Small Ticket Items (2000)
Percent of total online spending in each category for 2000 calendar year

Linens & Home Décor Toys/Video Games Apparel Small Appliances Sporting Goods Footwear Videos Books Music Jewelry Flowers Garden Supplies Software Tools & Hardware Health & Beauty Office Supplies 0% 20% 44.94% 40.93% 39.24% 37.44% 35.50% 35.11% 34.37% 33.90% 33.20% 32.28% 30.73% 30.31% 29.43% 28.54% 40%

59.79% 59.10%

60%

80%

Source: Forrester Research, 2001

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No doubt propelled in large-part by Holiday travel, airline tickets accounted for the largest share of total fourth-quarter 2000 spending on big ticket items. The big ticket product categories which appear most dependent on fourth-quarter sales were food/beverages and consumer electronics. Among the nine different big ticket product categories, six generated one-third or more of their annual online revenue during the fourth-quarter.

6.41 U.S. Q4 Online Retail Spending By Category: Big Ticket Items (2000)
Percent of total Q4 online spending across 25 categories (see 6.39 for remaining categories)

Air Tickets Computer Hardware Hotel Reservations Consumer Electronics Food & Beverages Car Rental Furniture Appliances Other 0% 4% 1.11% 0.63% 7.07% 8% 12% 5.85% 5.78% 4.71% 3.47% 8.57%

14.58%

16%

20%

Source: Forrester Research, 2001

6.42 Q4 Share Of Total Online Retail Spending By Category: Big Ticket Items (2000)
Percent of total online spending in each category for 2000 calendar year

Food & Beverages Consumer Electronics Furniture Appliances Computer Hardware Air Tickets Car Rental Other Hotel Reservations 0% 10% 20%

42.55% 39.15% 34.54% 34.37% 33.69% 32.78% 30.74% 29.04% 26.57% 30% 40% 50% 60%

Source: Forrester Research, 2001

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6.43 Weekly Online Shopping Activity For Holiday 2000
Percent change in traffic week to week for five representative sites in each category

Category Toys & Games Apparel Consumer Electronics Virtual Dept. Stores Books/Music/Videos Value-Oriented Sites Computer Hardware Specialty Gifts

11/5 -12% 5% 2% 1% 0% 3% -13% 35%

Change in Traffic for Week Ending 11/12 11/19 11/26 12/3 12/10 47% 3% 55% 15% -3% 43% 26% -16% 16% 24% 17% 16% 54% -11% 12% 12% 24% 14% 13% 12% 9% 5% -5% 22% 12% -1% 8% -15% 53% 5% -4% 19% -14% 14% 10% -10% 33% -1% 80% 2%

12/17 -7% -18% 2% -5% -7% -26% -6% 25%

Source: Nielsen/NetRatings Holiday E-commerce Index

Online shopping activity during Holiday 2000 peaked in week 7, between 12/3 and 12/10/2000, according to Nielsen/NetRatings’ Holiday E-commerce Index. The Holiday E-commerce Index is comprised of five representative e-commerce sites in each of eight categories and is designed to act as a barometer which gauges the weekly level of online holiday shopping traffic.

6.44 Weekly Aggregate Online Shopping Trips For Holiday 2000
Millions of visits from work and home combined

100 80 62.2 60 40 20 0 10/25 To 11/5 11/5 To 11/12 11/12 To 11/19 To 11/26 To 11/19 11/26 12/3 12/3 To 12/10 12/10 To 12/17 37.9 42.3 49.5 53.6

68.4

63.4

Source: Nielsen/NetRatings, 2000

6.45 Peak Traffic Week For Online Holiday Shopping By Category
Percent increase in visitors between start of holiday season and week of peak traffic

Category Toys & Games Apparel Consumer Electronics Virtual Dept. Stores Books/Music/Videos Value-Oriented Sites Computer Hardware Specialty Gifts

Wk 1

Wk 2

Holiday Shopping Week Wk 3 Wk 4 Wk 5 +138%

Wk 6 +130%

Wk 7

+115% +104% + 49% + 51% + 8% +264%
Source: Nielsen/NetRatings Holiday E-commerce Index

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Bizmetric.com tracked the order fulfillment performance of select online retailers during the Holiday 2000 shopping season and found that the Internetonly retailers were generally able to ship an order slightly more than one day sooner than their click-and-mortar counterparts. One of the biggest factors in

6.46 Fulfillment Time For Internet-Only vs. Click-And-Mortar Retailers For Holiday 2000
Average time to ship in days

Click-and-Mortar Retailers

2.97

Internet-Only Retailers

1.86

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Average Fulfillment Time in Days
Source: Bizmetric.com, 2/2001

6.47 Fulfillment Time For Select Online Retailers For Holiday 2000
Average time to ship

Online Retailer drugstore.com eToys 800.com SmarterKids.com Outpost.com Borders.com KBKids.com BestBuy Tower Records CDnow BabyCenter GAP Wal-Mart Egghead.com BarnesandNoble.com Amazon.com REI (1) Bluelight (1) REI Outlet (1) Lands’ End (2) Target (2) Average

Average Fulfillment Time 0 days, 10 hours, 5 minutes 0 days, 22 hours, 14 minutes 0 days, 22 hours, 35 minutes 1 days, 2 hours, 38 minutes 1 days, 3 hours, 9 minutes 1 days, 11 hours, 36 minutes 1 days, 15 hours, 57 minutes 1 days, 18 hours, 21 minutes 1 days, 21 hours, 42 minutes 1 days, 23 hours, 35 minutes 2 days, 3 hours, 0 minutes 2 days, 6 hours, 9 minutes 2 days, 11 hours, 50 minutes 2 days, 18 hours, 40 minutes 2 days, 22 hours, 12 minutes 3 days, 12 hours, 16 minutes 3 days, 13 hours, 39 minutes 4 days, 8 hours, 7 minutes 4 days, 11 hours, 0 minutes 4 days, 11 hours, 48 minutes 4 days, 12 hours, 9 minutes 2 days, 8 hours, 24 minutes

(1) Companies did not notify customers when orders shipped so delivery time is used as ship time, since this is the first indication to the customer their order has shipped. (2) Companies notified customers that orders had shipped, but often did so after delivery had already been made therefore fulfillment time appears longer than time to delivery. Source: Bizmetric.com, 2/2001

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fulfillment performance was the primary shipping method offered by each retailer, with most employing UPS Ground or Priority Mail from the U.S. Post Office. The stand-out retailer in fulfillment performance, Outpost.com, was able to deliver its customers’ orders on average in less than two days due in large part to its offering Airborne Overnight Air delivery as its standard shipping method. Among all of the retailers tracked by Bizmetric.com, the average elapsed time between placing an order and the customer receiving his or her order was 4 days, 15 hours, 8 minutes.

6.48 Total Time To Delivery For Select Online Retailers For Holiday 2000
Average elapsed time from order placement to delivery for orders placed between 11/27 and 12/24

Borders.com Amazon.com eToys BarnesandNoble.com BestBuy Walmart.com Egghead.com SmarterKids.com BabyCenter REI-Outlet Bluelight Gap Tower Records 800.com REI-Outlet KBkids CDnow Target Lands' End Outpost.com 0 1.77 2 4 6 3.1 2.61 2.47 5 4.78 4.76 4.53 4.47 4.46 4.34 4.15 3.87 3.75 3.57 3.56 5.75 5.35

6.81 6.63

8

Total Time to Delivery in Days
Source: Bizmetric.com, 2/2001

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BizMetric found that most of the online retailers it tracked were able to keep their promises of delivery by Christmas if orders were placed by the published deadlines. Out of 84 last minute orders placed, 92% were delivered on time and 10 of the 16 companies were able to deliver by Christmas 100% of the 47 orders they received.

6.49 Fulfillment Time For Last Minute Holiday 2000 Orders
Percent of orders delivered late or on time

Online Retailer Amazon.com CDnow eToys GAP KBKids REI-Outlet SmarterKids.com Tower Records Wal-Mart Lands’ End BarnesandNoble.com 800.com Outpost.com Target Bluelight Borders Average
Source: Bizmetric.com, 2/2001

Last Minute Orders 10 7 6 2 5 4 5 2 4 2 12 9 6 4 2 4 84

Late Orders 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 7

Pct. of Late Deliveries 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 8% 11% 17% 25% 50% 50% 8%

On-Time Delivery 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 92% 89% 83% 75% 50% 50% 92%

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Appendix
Data Sources

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The charts, tables, and other data provided in this report are all sourced from published, publicly-available information produced by the following organizations:
ActivMedia Research www. activmediaresearch.com Accenture www.ac.com ACNielsen www.acnielsen.com Advertising.com www.advertising.com The Arbitron Company www.arbitron.com Arthur Andersen www.arthurandersen.com Bank of Tokyo-Mitsubishi www.btmny.com BIGresearch www.bigresearch.com Bizmetric Inc. www.bizmetric.com BizRate.com www.bizrate.com The Boston Consulting Group www.bcg.com Cahners InStat Group www.instat.com CMRi www.cmr.com Cognitiative Inc. www.cognitiative.com comScore Networks www.comscore.com Consumer Electronics Association (CEA) www.techhome.org Content Intelligence www.contentintelligence.com Cultural Access Group www.accesscag.com CyberDialogue, Inc. www.cyberdialogue.com eMarketer, Inc. www.emarketer.com Employment Policy Foundation www.epf.org Ernst & Young LLP www.ey.com eTForecasts www.etforecasts.com Forrester Research www.forrester.com The Gallup Organization www.gallup.com Gartner Group, Inc./GartnerG2 www.gartner.com Global Reach www.glreach.com Goldman Sachs Group, Inc. www.gs.com Gomez Advisors Inc. www.gomez.com Greenfield Online, Inc. www.greenfieldonline.com Harris Interactive Inc. www.harrisinteractive.com Insight Express www.insightexpress.com International Data Corp. (IDC) www.idcresearch.com Internet Advertising Bureau (IAB) www.iab.net Jupiter Media Metrix www.jup.com Paul Kagan Associates, Inc. www.kagan.com Kinetic Strategies www.kineticstrategies.com Knowledge Systems & Research www.ksrinc.com KPMG International www.kpmg.com Mediamark Research www.mediamark.com Morgan Stanley Dean Witter www.msdw.com Myers Reports www.myers.com National Retail Federation (NRF) www.nrf.com NetValue www.netvalue.com NextCard Inc. www.nextcard.com Nielsen/NetRatings Inc. www.netratings.com The NPD Group Inc. www.npd.com Odyssey L.P. www.odysseylp.com Ovum www.ovum.com Pew Research Center www.pewinternet.org J.D. Power & Associates www.jdpa.com

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PriceWaterhouseCoopers www.pwcglobal.com Rasmussen Research Inc. www.portraitofamerica.com Roper Starch Worldwide Inc. www.roper.com Scarborough Research www.scarborough.com Taylor Nelson Sofres and TNS Intersearch www.tnsofres.com Telephia Inc. www.telephia.com UCLA Internet Project www.ccp.ucla.edu

Universal McCann www.mccan.com U.S. Census Bureau www.census.gov Veronis Suhler www.veronissuhler.com Visa USA www.visa.com Vividence Corp. www.vividence.com The Yankee Group www.yankeegroup.com Zona Research www.zonaresearch.com

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