Around 2% of faucets get sold online; will trade sales grow stronger?

Remember all the hype about e-commerce at the turn of this century? One widely reported study by Forrester Research predicted that by 2004 more than 13% of North American transactions would be via e-commerce, to the tune of some $3.2 trillion. In reality, the U.S. Dept. of Commerce pegged 2006 retail e-commerce sales at $108.7 billion, merely 2.8% of all retail sales. True, that’s only for the U.S. rather than all of North America, but it’s safe to say e-tailers south and north of the U.S. borders did not make up the huge difference between Forrester’s forecast and transactions actually made online in the U.S.

Commerce pegged 2006 e-tail sales growing at a 23.5% pace, compared with 5.8% overall retail sales growth. This is a large bulge in the electronic direction; however, a big percentage gain with such a small slice of the market means less than meets the eye. While e-commerce is bound to grow some more, it’s beginning to look like hands-on shopping will remain the dominant part of our consumer culture indefinitely.

Nonetheless, a few e-entrepreneurs have carved out lucrative niche businesses selling plumbing products over the Internet - chiefly faucets. Put “faucets” into a Web search and you’ll find dozens of e-commerce Web sites. A few are subsidiaries of plumbing wholesalers, although more are so-called “pure play” Web-only retailers. Some of these proprietors have plumbing industry backgrounds, others don’t.

Several months ago I spoke to more than a half-dozen of these e-tailers while researching a presentation I made about e-commerce at the Plumbing Manufacturers Institute Spring Meeting last April. Their consensus guesstimate was that the Internet accounts for between 2-3% of faucet sales, similar to the percentage for overall retail sales. That’s not much market share, but it adds up to around 2 million faucets sold online each year, enough to provide a nice chunk of business to the Internet sellers. It certainly has been a boon to Your Other Warehouse and other master distributors that have taken charge of supplying and fulfilling Internet orders for the e-tailers.

Booking orders over the Internet may sound like tapping into an automatic money dispenser, but the business is more complicated than some proprietors originally figured. Customer service still counts for a lot. Many e-shoppers also place telephone inquiries, and online rating services such as www.bizrate.com enable consumers to report on their experience with the e-tailers. The successful ones have found out they need to employ top-notch people to answer questions and troubleshoot orders. Marketing costs also are significant because with conversion rates only in the low single-digits and small order quantities, e-tailers need to drive plenty of eyeballs to their Web sites. Google search ads are a favorite advertising medium and the rates aren’t cheap.

Most of the e-tailers I interviewed estimated consumers account for about 80% of their business, the rest coming from trade sales, broadly defined. Almost everyone expressed the belief - maybe wishful thinking - that trade sales will blossom in years to come.

One of the earliest plumbing Internet e-tailers was www.plumbingsupply.com, a Northern California wholesaler’s offshoot. They’ve been at it since 1995 and their Web site identifies a lengthy list of customers that have purchased from them. The roster reveals a wide variety of companies and institutions big and small (www.plumbingsupply.com/some.html). Price drives some Internet sales, but even more e-shoppers are attracted by selection, availability and convenience. Online shoppers generally don’t care to spend time visiting showrooms or big box stores.

Here are some other interesting tidbits about e-commerce that I learned while researching my PMI presentation:

142 of the top 500 e-tail businesses are owned by store-based retail chains, such as Home Depot. These chains account for 40% of online sales. Pure plays account for 30% of sales, consumer-branded manufacturers 15%, and catalog or direct marketing firms 14%. This according to the online Internet Retailer.

Technology products - computers, entertainment devices, etc. - are one of the largest e-commerce categories. Internet sales accounted for $25.7 billion in 2006, 22.7% of all technology sales, according to the NPD Group. Online sales of TVs were about 10% of the market, some $1.8 billion. Would you have predicted 10 years ago this scenario for technology products?

Some plumbing e-tailers would like to undersell the marketplace even more than they do, but are prevented by the minimum advertised price policies of certain manufacturers. Monitoring and enforcement is lax, however. Some e-tailers told me most manufacturers look the other way, while others enforce the policy only when business is booming - or when a key distributor complains.