1.6% of 4Q retail sales done via Internet

U.S. online purchases grew to $14.3 billion

February 25, 2003|By BLOOMBERG NEWS

WASHINGTON - U.S. Internet commerce as a proportion of total retail sales rose in the final three months of 2002 as consumers took advantage of free shipping and discounts to buy holiday merchandise.

Online retail purchases totaled $14.3 billion, or 1.6 percent of all sales, during October-December, the Commerce Department said. That was up from 1.3 percent in the third quarter and represents the largest share of all sales since the survey began in 1999.

Free shipping, discounting and ease of ordering online appealed to consumers, whose total spending accounts for more than two-thirds of the economy, economists said.

Amazon.com, the world's biggest Web retailer, said more than 56 million items were ordered during the holidays.

The higher share of Internet sales may have come at the expense of traditional retailers, which had their smallest same-store sales gains in three decades.

"It's not as good as it should be," said Richard Hastings, chief economist at Bernard Sands, a New York company that advises retailers in retailing trends. "The numbers show a slowing down of growth in consumption."

The quarterly survey, which has been conducted for three years, also showed that Internet sales increased 29.3 percent in the fourth quarter from the prior three months. Compared with the corresponding period in 2001, Internet sales were up 28.2 percent.

The growth has attracted states looking for new sources of tax money amid budget deficits. Wal-Mart Stores Inc. and Toys `R' Us Inc. are among U.S. retailers that have agreed to increase the taxing of sales on the Internet as states press for more authority to assess levies on Web transactions.

Retailers including Wal-Mart and Toys `R' Us this month voluntarily began taxing $500 million of Internet sales not previously collected, said John Coalson Jr., an attorney for the companies. At an average rate of 5.25 percent, $500 million in Internet sales would raise about $26 million in state taxes, a tiny fraction of the almost $100 billion in deficits that states face in the next two years.

States also want more Internet transactions taxed because of the rising popularity of Web shopping. A federal moratorium has barred states from requiring that retailers collect sales tax unless the business has a physical presence in the state.

The government surveyed 11,000 businesses, including mail-order and online retailers, furniture stores, building materials dealers, new car dealers, groceries and department and clothing stores. Online travel services, financial brokers and ticket sales agencies were not included.

Still, a slowdown in wage gains may restrain spending, economists said. Average hourly earnings last month were 2.7 percent higher than in January last year. That was the weakest year-over-year growth since May 1995.

"With slower personal income growth, it gets much harder to envision where consumers will get the funds needed to sustain consumer spending growth," said Scott Anderson, an economist at Wells Fargo & Co. in Minneapolis.

The new statistics aren't adjusted for seasonal variations or broken down by industry. Because of that, the government said the e-commerce figures shouldn't be compared with private industry estimates.

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