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Correction to This Article
A May 14 A-section article on online retailing incorrectly said that money spent on computers topped the list of spending categories every year in the past decade until last year. Computers have been among the top categories, but not always No. 1.
Online Sales Shift: Apparel Outpaced Computers in '06

By Ylan Q. Mui
Washington Post Staff Writer
Monday, May 14, 2007

Online shoppers spent more money last year on apparel than on computers for the first time, a reflection of the Web's increasingly broad appeal, according to a report to be released today by a leading retail trade group.

Consumers spent $18.3 billion on clothes, accessories and shoes in 2006, up 61 percent from the previous year. Computer hardware and software sales totaled $17.2 billion, up 20 percent from the previous year. Total online retail spending, excluding travel, grew 25 percent to $146.5 billion.

"If you were looking for a sign that online retail has arrived and gone mainstream, this would be the sign that you would be looking for," said Scott Silverman, executive director of Shop.org, which commissioned the report.

The group is an arm of the National Retail Federation. The study was conducted by Forrester Research, and 174 online retailers were surveyed.

Computers had held the No. 1 slot every year since the survey began a decade ago, but apparel has had a rockier journey. Conventional thinking held that shoppers would be reluctant to buy clothes they couldn't touch and feel, shoes they couldn't try on. High shipping costs, tiny product photos and low bandwidth exacerbated the problem.

Today, that sounds so 20th century.

A raft of new sites -- such as shoe retailers Piperlime by Gap and Endless.com by Amazon -- have helped fuel the growth in apparel spending. Liberal shipping and return policies pioneered by companies such as shoe e-tailer Zappos.com have helped mitigate the risk for many wary shoppers. And online apparel retailers have invested in new technology that lets shoppers zoom in on merchandise, sort related products and even watch videos in an effort to mimic their natural shopping experience.

"Retailers are systematically addressing different hurdles for customers to buy online, and they're doing this to reduce the risk and uncertainty particularly of shopping for clothes," said Sucharita Mulpuru, senior analyst for Forrester and lead author of the report.

Zappos chief executive Tony Hsieh said the company initially didn't offer free shipping for purchases and returns. But within six months of the site's launch in 1999, customers were clamoring for it. Establishing the policy of free shipping and returns allowed shoppers to order several styles of shoes -- or even the same shoes in different sizes -- and return the unwanted pairs with no penalty. That helped drive repeat business and customer loyalty, Hsieh said.

The business model proved so successful that the site now sells clothing, handbags and other accessories. Revenue was $597 million last year and is expected to reach $800 million this year. And merchandise is now promised to be delivered overnight.

"It gets close to that instant gratification you get in a brick-and-mortar store," Hsieh said.

Apparel retailers have also embraced the Web as an extension of their brands. Teen clothing company American Eagle Outfitters last summer hired a rock band, the All-American Rejects, to perform inside a store -- and then Webcast the two-hour event on its site. The concert not only drew shoppers to the site, but also gave the retailer an excuse to communicate with its customers several times before and after the event.

"There's a real psychology behind it that's quite powerful," said Greg Pulier, co-founder and chief executive of Interactive Video Technologies, which broadcast the concert. "It's really about creating a community that has the aesthetic and interest of your target customer."

But retailers and consumers still seem to be moving cautiously. Online apparel sales accounted for only 8 percent of total clothing sales last year. By contrast, 41 percent of computer sales were online, more than any other category. More than 10 percent of sales of office supplies, gift cards and baby products, among other categories, were online.

Still, Silverman said the Internet plays an important role in influencing shoppers' purchasing decisions -- even if the sale takes place in a traditional store.

"Transactions are only the tip of the iceberg," he said. "The big question is whether retailers are really prepared to meet the full potential of the Internet."

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