Consumer Direct Channel Will Account for 12% of U.S. Retail Sales by 2010.

Business Editors

STAMFORD, Conn.--(BUSINESS WIRE)--June 28, 2000

Brick-and-Mortar Retailers Forced to Respond With Hybrid Shopping

Model

The Consumer Direct (CD) channel will generate one of the largest scale shifts in economic history accounting for 12 percent of all U.S. retail sales by 2010, according to "Consumer Direct: Shopping Behavior in the Age of Interactivity," a new study by Peppers and Rogers Group and Institute for the Future.

The CD channel, which includes catalogues, direct mail, interactive television and online, will be an increasingly important source of information and assistance for shoppers making purchasing decisions. As a result, by 2010 the Consumer Direct channel is likely to affect more than 24 percent of all US retail sales. Total CD revenue leaped from $115 billion in 1998 to $133 billion 1999, accounting for nearly five percent of retail sales.

"The increasingly hybrid nature of shopping is blurring the lines between traditional and Consumer Direct sales channels," said David Halek, director of the million-dollar cutting-edge project at Peppers and Rogers Group. "The critical factor in defining a CD transaction is where the goods are ultimately purchased, not where they're delivered or picked up. Consumers are learning to bundle Consumer Direct and bricks-and-mortar shopping experiences to make their buying decisions so even though a purchase may occur at a local store, the actual product selection might take place online or through a catalogue."

Consumers Migrate to Consumer Direct Channel

Eighty-three percent of U.S. consumers made a purchase through direct-to-home shopping channels during 1999, and 25 percent of this group bought products online. Through 2010, within the Consumer Direct channels there will be a dramatic shift toward online activity, despite a healthy pace of shopping in offline channels, such as catalogues and direct mail.

But all is not lost for the staunch traditional catalogue shopper. As much as 20% of non-CD shoppers are interested in catalogue shopping in the future, which suggests continued growth in shopping via catalogues for some time.

"Consumers continue to integrate multiple Consumer Direct channels into their shopping mix, maintaining their use of traditional CD venues and adopting new channels like the web" notes Katherine Kress, Director of Institute for the Future. " Now, more than ever before, companies must understand consumer shopping behavior across channels to target effective marketing messages."

Bricks-and-Mortars Raze Old Strategies

Brick-and-mortar retail establishments will respond in force to the rapid growth of remote shopping and the dramatic impact the Consumer Direct channel will have on their businesses by improving their offerings and the convenience of shopping at their stores. The Consumer Direct study indicates that a significant part of a revitalized bricks-and-mortar strategy will be to link physical stores more closely with the CD channel.

"Companies need to establish and maintain a presence in multiple channels - stores, mail, catalogues and online," said Halek. "They also must have consistent messages across channels and treat an individual customer consistently no matter where he shops."

With an increasing integration between the physical and virtual worlds, "Shopping Behavior in the Age of Interactivity" finds Consumer Direct companies will empower consumers with more choice and control in their purchasing decisions through interactive and collaborative Learning Relationships that enhance customer loyalty.

"The hybrid nature of shopping will make it more important than ever for companies to build Learning Relationships with their customers that will enable them to offer personalized information and options across all channels," said Martha Rogers, Ph.D., Partner of Peppers and Rogers Group. "Consumer Direct companies that grow smarter about an individual customer over time can make it easier and easier for her to shop at that company, and will be able to deliver services to her unavailable to her from competitors, since those services will be based on that customer's feedback."

Study Interviewed Thousands of Households

The Consumer Direct study, led by Martha Rogers and Greg Schmid of Institute for the Future, surveyed 2,500 households and included interviews with leading catalogue, Web and online grocery shoppers.

Other key findings include:

-- Cash-strapped dot.coms are consolidating as the Consumer

Direct channel matures to meet growing consumer need through

personalized, one-to-one offerings.

-- Remaining online merchants are building scalable logistics and

delivery models to suit the changing needs and expectations of

their customers while sustaining their own growth.

-- Interest in automatic replenishment among the most

sophisticated group of Consumer Direct shoppers ranges from

40% for household items to 60% for prescription medicines.

Automatic replenishment services can either remind the

consumer about items they are likely to run out of soon, or

can automatically purchase and send the items the consumer

needs. Consumers generally are more interested in a automatic

replenishment model in which they maintain control by

receiving a reminder of items they are likely to run out of

soon and have the opportunity to accept or decline shipment of

that item.

-- Consumers are coming to expect companies to deal with them as

one customer across all channels.

-- Drugstore shoppers are the most likely group to search for an

item online but complete the purchase in a store or on the

phone.

-- Increasing numbers of U.S. consumers are trying Consumer

Direct channels for the first time for many reasons,

including:

-- Unique Items. 72% of catalogue/mail shoppers and 50% of

online shoppers said one of the top two reasons they tried

the channel for the first time is because it offers items

they cannot find at stores

-- Free shipping. 35% of catalogue/mail shoppers and 24% of

online shoppers were also enticed by free shipping offers.

-- Time savings. 84% of consumers who have tried online

grocery delivery services such as Peapod said that one of

the top two reasons was to save time shopping

CD Study Expands to Include Business-to-Business and Europe

Now entering its third year, the Consumer Direct study from Peppers and Rogers Group and Institute for the Future helps senior executives build sound business strategies in response to a marketplace undergoing rapid transformation. Participants include industry leaders such as Procter & Gamble, General Motors, FedEx, United Parcel Service, Direct Marketing Association, US Bancorp, United States Postal Service, Ralston Purina, Skymall, Peapod and Kraft.

In 2000, the Consumer Direct study will expand to include a comprehensive investigation of Consumer Direct in Europe and the business-to-business market, and will include inquiries into taxation and regulatory issues, privacy and data protection, wireless e-commerce, and personalization.

About Peppers and Rogers Group

As the preeminent management consulting firm specializing in CRM and e-business strategies, Peppers and Rogers Group guides companies through the transition to customer-focused strategies that create loyal, more profitable customers. The firm's profile includes strategic consulting, executive education, primary research, custom communications and executive recruiting. Clients include Fortune 200 companies in automotive, computer, consumer goods, financial-services, media, telecommunications, Internet, and other industries.

About Institute for the Future

Institute for the Future is a nonprofit research and consulting group with a 30-year track record in forecasting critical changes on the business landscape. The Institute works with clients to facilitate a long-range understanding of change in technology, the economy, society, and the business environment--and the long-range domestic and global consequences of these changes.

For additional information about Consumer Direct, contact David Halek at [e-mail] or 203-969-0801.