WORSE, ONLINE RETAILERS were coming off a dismal third quarter, in which sales had slipped 15 percent to $17 billion–the first decline in e-commerce history, according to Forrester Research.
But the holiday now appears to be anything but bleak for online retailers. The strike is over, the war is on hold, consumers have told pollsters that economic malaise will have little effect on their holiday shopping and online sales have taken off. With another week of Christmas shopping left, Internet sales are already up 25 percent or more from the same point in last year’s season. Last week, they hit an all-time weekly record of $2.2 billion–37 percent higher than the same week a year ago, according to ComScore, a national e-business research firm. True, the 2001 season was pretty dismal, so almost everyone expected a big jump in sales this year. “If you look at year-over-year increases, sales look great, but last year was a very bad year,” says Carrie Johnson, a senior analyst at Forrester Research. Still, she acknowledges, online sales are “going well.”
Forrester estimates consumers will ring up $9.5 billion in sales this season, up about 14.5 percent from last year. But so many shoppers have purchased online so far that sales may exceed the research firm’s forecast. ComScore began tracking online sales on Nov. 10. By the end of last week, sales had already reached $8.8 billion–well ahead of last year. And while Jupiter Media Matrix is expecting just a 3 to 4 percent increase in overall retail sales compared to a year ago, it forecast a 17 percent increase in online sales for the holiday season (which it defines as Nov. 1 through Dec. 31). Analyst Ken Cassar says the actual online figures could be even higher if sales-to-date are any indication.
So what happened? In a season dominated by penny pinchers and coupon clippers, online retailers have used free shipping, deep discounts and money-back coupons to convince consumers to do their shopping online–and on their sites. And the promotions have paid off. “It’s not that shoppers are necessarily increasing the size of their budgets,” says Cassar. “But more people are buying online, and those who were buying online already are spending more there than in the past.”
Since Thanksgiving, Kmart.com, which is still offering free shipping on all items listed in its special “Free Shipping Shop” section, has seen its sales more than double from the same period a year ago. And since L.L. Bean reinstated its unconditional free shipping for online orders after a seven-year hiatus, its daily online transaction volume has doubled compared to the same days last year. Company spokesman Rich Donaldson said there was an immediate increase in sales after free shipping began the day after Thanksgiving.
Even e-tailers without huge shipping promotions are reporting higher sales. Bluefly.com, a five-year-old site that sells discount designer clothing, reported sales for the four-day Thanksgiving weekend were up 50 percent over the same period last year.
There are other reasons, as well, for the double-digit rise in online sales. The online market is still in its infancy compared to more traditional retail channels, so there is more room to grow–especially as consumers become more accustomed to using the Internet. Most major retailers have had an online presence for a few seasons now, so improvements have been made to their sites and customers have grown more comfortable buying online. Most retailers have also taken advantage of research and promotional opportunities exclusive to online shopping-from e-mail alerts to customized pages that track shoppers’ purchases then make suggestions for other items (“If you like that, you might like this”).
There is a downside to the jump in online sales, though. For the most part, they are coming at the expense of in-store and catalog sales. Consumers may actually be spending the same or slightly less on holiday gifts this year–in fact, research from Jupiter indicated just that–but they are spending more of it online. When the National Retail Federation asked online shoppers about their spending plans this season, 35 percent said they planned to spend more online than last year, but nearly half (47 percent) said they planned to buy less from catalogs.
That is certainly evident at upscale gift retailer RedEnvelope.com, where catalog sales have slowed this season while online transactions have skyrocketed. President and CEO Alison May says other retailers have seen similar trends. But the strong growth in online retail does not necessarily compensate for the slowdown in other areas. “You can double your Web business,” says May. “But if it’s still only a tiny percent of your overall business, it’s not that huge a difference.”
The percentage is growing: Jupiter Matrix forecasts 21 percent annual growth in online sales over the next five years. “It is taking a bigger and bigger piece of the pie,” says Cassar. But it’s still a pretty small piece. Even with double-digit annual growth, online sales are expected to represent just 2 percent of total retail sales this year–and just 5 percent by the end of 2007.
