Live from Shop.org: Wall Street’s Take on E-Commerce

Oct 13, 2006 10:51 PM  By

New York–Wall Street loves growth. And with e-commerce, there’s plenty of it, said Safa Rashtchy, managing director/senior research analyst, technology for Piper Jaffray and Co., during a Shop.org session entitled “The Wall Street View of E-commerce and Multichannel Retailing.”

Rashtchy sat on a panel with Mathew Fassler, managing director at Goldman, Sachs & Co., and Carrie Johnson, vice president, research director for Forrester Research. The session took place here Oct. 12.

According to Rashtchy, the e-commerce sector hit $130 billion in revenue in the U.S. and is growing at 18% annually. By 2010 e-commerce sales should reach $225 billion and account for 4.8% of total commerce. Good news, right?

Well, for publicly traded companies, valuations take into account other factors in addition to sales. These factors include gross margin rates and competition. And there are an estimated 500,000 players in the e-commerce sector. “So merchandise is no longer dominated by the pure-plays,” Rashtchy said, “and smaller companies can survive on very low margins.”

Another factor that will dominate growth in the next few years is search, which Rashtchy called the “third medium,” following retail and the Web. Search, he said, “has revolutionized and redefined the merchandise rules and has drawn consumers away from retail and the Web.”

Local search, however, is in fact a boon to brick-and-mortar retailers. After all, “people prefer to shop locally,” Rashtchy said, and improved mapping should fuel local-search growth in the years to come. In fact, he estimated that search will have a hand in 50% of all purchases in the near future.

But be careful in putting all your marketing dollars toward search costs, he added. “I’ve heard the use of search be compared to cocaine. You buy it and it’s cheap. You keep buying it because it works very well. But costs go up because you begin to rely on it to drive your business.”