The way consumers shop for everyday products continues its transformation towards the Web. In 2008, online retail accounted for approximately 7% of total retail sales in the U.S, with 1.5% of consumer packaged goods (CPG) spending done on the Web.

In the future, your children will likely conduct the majority of their shopping online. While online shopping accounts for a modest percentage of today’s sales, it is growing rapidly – Nielsen estimates that online CPG sales alone increased 25-30% between 2004 and 2008. And there are compelling reasons to believe that growth will continue, as overall online sales are projected to increase almost 200 percent between 2008 and 2012.

Shopping Evolution Centers on Convenience, Choice and Value

Shopping has evolved along three dimensions, with each new phase increasing consumer convenience, choice and value – the three main reasons consumers shop online today. Online shopping redefines convenience and choice and equips consumers with unprecedented way to seek value.

Convenience – online is a simpler, faster, more hassle-free way to shop for frequently purchased products.

Choice – online offers more variety, which services like Peapod’s “endless aisles” clearly demonstrates.

Value – while value isn’t the primary reason most consumers shop for “everyday” products online today, it will become increasingly important as e-commerce becomes more mainstream. Tools to rapidly compare product prices already exist and online coupon sites have become the rage in the down economy.

Smaller, Niche Retailers Can Reap the Benefits of an Online Presence

Whether searching for solutions to a specific need, directly accessing retailer Web sites or deciding to click on an advertisement or link, consumers have far more control over what they are or are not exposed to online than offline. This offers smaller brands the opportunity to generate an online presence that is effectively larger than their big brand counterparts are, while serving up compelling messages and undercutting leading brand prices – all at the point of purchase.

Take the beauty care category as an example. Boutique retailers with fewer stores and lighter foot traffic than the large offline chains are as readily accessible on the Web as a Walmart or Target, which sometimes do not carry the leading offline beauty care brands on their Web sites.

What is interesting to note though, is that the online commercial challenge for leading consumer brands has less to do with the “long tail” than with the collapse of physical structures that literally help distance leading brands from smaller brands offline. It is not the number of brands available online that matters, but that there is less separation between them, which levels the playing fields, creating a flatter, broader marketplace for everyday brands.

To learn more about digital opportunities for leading brands, download Building Great Brands in the Digital Age: Guidelines for Developing winning Strategies.

I was very interested to hear the news yesterday that Amazon had acquired Zappos for $847 million in cash and stock. Since Zappos founder Tony Hsieh asked and answered some of his own questions about the deal in a letter to employees so I thought it’d be useful to engage in a Q&A with myself about the deal.

1. Why did Amazon buy Zappos?
A: Two numbers answer that succinctly: About 5 percent of Amazon’s sales are apparel/footwear sales, compared with 97 percent of Zappos’ sales (according to June 2009 data from our retail tracking service). Simply put, Amazon has not dominated apparel sales as it has most other categories online. While Zappos isn’t biggest seller of apparel/footwear on the Web, it is the largest of Internet pure play retailers. More importantly, Zappos has developed a reputation for customer service (Amazon’s priority one according to founder Jeff Bezos) that will only improve Amazon’s already strong standing amongst online shoppers. More than 1 million people follow Zappos on Twitter (a cornerstone of their customer service), far beyond any Twitter account managed by Amazon.

2: Did Amazon pay too much?
A: I’m not a financial analyst, but the online apparel category is the largest online merchandise category, expected to grow to $41.8 by 2012. For Amazon not be a formidable player in this space is nearly unthinkable for the company that sees itself as the World’s Biggest Store. Amazon has tried to answer Zappos with the launch of shoe and handbag site Endless.com, but was never able to materially chip away at Zappos’ dominant position. Endless.com registered about one fourth the traffic that Zappos did in June 2009.

3: Why didn’t a company like Wal-Mart or Target buy Zappos?
A: Wow, another great question, Ken! I’m sure that this notion was entertained by the big brick-and-mortar retailers, but the reality is that companies like Wal-Mart and Target have their best online opportunities run through their stores. The fact that they have thousands of stores throughout the country is a huge asset to their online businesses that a big pure play purchase such as Zappos might be distracting to their longer term success. I do wonder, though, if Amazon’s decision to buy Zappos could have been at least partly driven by a fear that this might happen.

4: Beyond merchandise sales, how do Amazon and Zappos fit together?
A: Amazon and Zappos have relatively similar customer bases, although Amazons’ is substantially larger (60M uniques per month vs. 4.1M uniques for Zappos in June 2009). Zappos’ customer base does skew a bit more female (69% compared with Amazon’s 55%) and a little younger, largely a function of the merchandise offered by Zappos. The most telling statistic is that in June of 2009, 77 percent of Zappos shoppers also shopped at Amazon.

5: Amazon has said that it will run Zappos as a separate brand. Is this smart? What do you think that Amazon should do in the longer term?
A: Zappos elicits more passion from its customers than any other brand that I can think of, online or offline, something my colleague Pete Blackshaw has documented for some time. Amazon would have been insane to scuttle the brand. In the long run, it becomes more interesting. I think that Amazon will benefit from the Zappos halo, and vice versa. Amazon can learn from Zappos’ innovation around customer service and marketing. Zappos can learn from Amazon’s technology and database marketing. In five years, I’d say that it’s even money that Amazon looks more like Zappos than the other way around. As to how they brand it, I’m not willing to lay odds either way.

But it was Bath & Body Works’ website – ranked ninth, with 3.56 million unique visitors – that showed the most impressive year-over-year growth: 39%. 

American Eagle (+25%) and Gap (+23%) also logged impressive gains over November 2007.

The top 10 apparel and beauty online shopping destinations, ranked unique visitors in November, are below.

Read the full article on InternetRetailer.com.

Metrostyle (23.6% conversion rate), QVC (21.6% conversion rate), Office Depot (21.6% conversion rate), L.L. Bean (21.5% conversion rate), Tickets.com (20.1% conversion rate), Blair.com (18.9% conversion rate), Lands End (18.4% conversion rate), 1800flowers.com (17.8% conversion rate), and The Sportsman’s Guide (16.8% conversion rate) rounded out the top ten.

Top online retailers in ten key product categories, ranked by purchases and customer numbers in November, are below.

Read the full article on InternetRetailer.com.

Already this year, Nielsen witnessed significant year-over-year (ending September 2008) growth in online activities with increases in time spent daily on videos (+46%), blogs (+20%), and e-commerce sites (+17%).

Expect this trend to continue, as well as increases in newer in-home entertainment options such as video vending.

But don’t expect more time spent at home to trigger increased book sales.

Technology-driven gadgets, gizmos, and games will dominate spare-time activities, while U.S. book sales will remain essentially flat, with a modest 1.5% unit growth rate.

Look for a rise, however, in self-help books, as out-of-work consumers look to rediscover themselves.

Read Nielsen’s complete 2009 Industry Outlook in “Consumer Insight.”

View the latest issue of “Consumer Insight.”