Online retail comes of age for holiday

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Toys `R' Us, after a grim vision of Christmas yet to come, last week laid off hundreds of workers and announced the closure of one of its Manhattan stores. Amazon, which happens to be the e-tailer for Toys `R' Us merchandise, enjoyed a far rosier holiday, logging its heaviest order day in history with 2.8 million orders in the run up to Dec. 25.

This is perhaps the starkest example of the new holiday sales reality: There is no celebration without the Internet. While brick-and-mortar retailers struggled to achieve what will turn out to be an average year-a 3% to 5% increase over last year's holiday sales-Internet shopping sites experienced a sales boon. The most conservative online-sales data estimate the spike was 19% over 2003 holiday sales, others expect when all is tallied a skyrocketing 29%. A glance at individual weeks is even more staggering. Consumers dished out $2.45 billion online between Dec. 13 and 19, an increase of 57% over last year.

Analysts point out that many stores' figures won't be reported until early January. And holiday gift cards, which are the third most-popular gift category according to the National Retail Federation, may improve results once they are cashed in. Overall, the NRF says that consumers will have spent $17 billion on gift cards this holiday, up $100 million from last year.

still small

At $15.5 billion, according to ComScore, holiday sales of the entire online retail business still pale alongside Wal-Mart alone, amounting to less than a third of the total holiday sales of Wal-Mart Stores in the U.S. But with the online sector representing up to 10% of holiday sales for retailers overall, according to the NRF, the Internet component cannot be ignored.

"What differentiated this holiday season from the last is that retailers have had a good six or seven years of experience [with online] to get it right, and consumers rewarded them with increased sales," said Pete Blackshaw, chief marketing officer at consumer-research firm Intelliseek.

Online good fortune was no accident and cyber-sales are not occurring in a vacuum. Indeed, e-shopping success has everything to do with strong tactical planning offline, as well as on Web sites.

Part of that good fortune came from Internet newbies trying out Web shopping for the first time-some 20 million have gotten online in the last two years. Broadband, which now brings high-speed service to 50% of online households, makes online buying more convenient.

Observed Mr. Blackshaw: "More companies took strong clues from Amazon and shifted marketing dollars to customer service and free shipping." Indeed, "free shipping" was among the most popular key phrases marketers bought on search engines this season.

Web site e-Bags displayed a house pop-up ad as visitors logged on, touting "free ground shipping, free returns, 110% price guarantee." And Dell Computer offered to foot the bill for second-day shipping as late as the Monday before Christmas.

A Jupiter consumer-research study earlier this year showed that concerns about returns, credit cards or shipping were reduced between four to 10 percentage points. "This year we saw the sales curve sustained at near-peak levels well into the week of Dec. 19," said Dan Hess, senior VP, ComScore Networks.

Once a large number of shoppers embrace online shopping, retailers may see even more of a shift in purchasing behavior.

Consumers who research products online often end up buying from a Web site. Retail stores suffer because fewer consumers are walking their aisles and browsing. Online research can also harm offline outlets because consumers may uncover a store that is not their typical outlet for that product-like going to Circuit City instead of Sears for appliances.

multi-channel boost

That behavior can help a multi-channel strategist, like Best Buy, which offers conveniences such as online purchase/in-store pick up. A consumer can order a product at work, check that their local store has it in stock and pick it up from that store on the way home from work-all within 30 minutes, said Jay Musolf, Best Buy spokesman.

Not only do multi-channel consumers buy more, but they are also drawn to multi-channel marketers over those that only offer a Web site. A ComScore study conducted mid-holiday season demonstrated aggregate growth rate for multi-channel retailers was 50%, compared with 25% for pure online marketers.

By 2005, the channel a customer shops may no longer matter, analysts say. The best way to prepare is to "get really smart about profiling customers," Mr. Blackshaw said. "Get a name, get an e-mail, learn about their shopping habits, learn where they go and what they buy and use it to inform your strategy."

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