Saturday, February 18, 2006

Internet Retail Sales: Still Growing

Since 1999, the Commerce Department has been tracking Internet sales. Our affinity for online purchases keeps growing, as shown by the latest figures: we now purchase 2.3 percent of retail goods via Internet channels. Internet sales for the 3rd quarter of 2005 were up 26 percent, while regular sales were up only 8 percent, over 2004 levels.

A complete rundown on these statistics can be found in a press release available here:

2.3 percent may not seem like much, but the growth since 1999, when this was at only .6 percent, reflects a trend that may trouble state and local governments dependent on sales tax revenues. Based on Census data for combined state and local governments in 2002-03 (the most recent data available from the Census Bureau), general sales taxes (a category that includes retail sales but excludes special taxes on gas and tobacco, for example) totaled $229 billion. This sum approximates the total of corporate income taxes ($31 billion) and individual income taxes ($199) combined, and it represents about one sixth of the total tax revenues collected by state and local governments combined.
More details on this data can be found here:

On an annualized basis (Q4 2004 to Q3 2005), the Internet sales amounted to $81.7 billion (vs. $3.72 trillion total sales). Assuming sales taxes at 6 percent (a little lower than average, to account for some folks paying these taxes), this would amount to almost $5 billion more for state and local governments if all these revenues could be captured. That's not a big percentage of their tax revenues, but a billion here and there adds up over time.

Though some of the increased Internet retailing will undoubtedly include downloading tunes (and paying for them like responsible people should) and other intangible purchases, it will be interesting to ascertain the portion that is actually comprised of tangible goods. If this segment is growing, we should expect solid opportunities for shipping services like FedEx and UPS, both of which are trading at around 20 times earnings.


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