Yule log

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Despite the ghost of christmas past, despite the dot-com debacle, despite the prospect of a sluggish economy, the 2000 holiday season marks a turning point for e-commerce.

Brick retailers have overcome their fears and are starting to recognize the Internet for the commerce channel it can become. The number of items available on the Web, particularly at brand-name sites, has skyrocketed. For instance, Kmart Corp.'s Bluelight.com went from zero products last Christmas to offering 250,000 items this year. Free shipping and low price deals, which cut into Wall Street's profits last year - are now harder to find. Pure-play e-tailers have disappeared like Santa's footprints, leaving only the fittest to survive.

In a retail report issued today by Jupiter Media Metrix's Jupiter Research, only 11% of advertisers, down from 29% last year, said they planned to spend more than 50% of their ad budgets during the holiday season. "Smart merchants must set priorities and target existing customers, emphasizing convenience, not discounts, this holiday season," the report said.

E-tailers, disillusioned with the return on investments from mass portals, the report added, are spending more money on inexpensive, more accountable media such as e-mail and affiliate marketing programs. The report found that 79% of e-tailers plan to send promotions to users on their opt-in e-mail list, up from 72% in 1999. Only 58% plan mass portal ad campaigns, down from 72% last year.

"Retailers have stopped differentiating between e-commerce and commerce, recognizing the need for multiple distribution channels," said Patrick Gates, VP of e-commerce, America Online. He noted, however, online selling is as much as five years away from truly coming of age, and a lot still has to be figured out about consumer behavior.

Retail consultant Walter Loeb, president, Loeb Associates which publishes The Loeb Retail Letter, said this year, click-and-brick retailers will experience e-commerce success, while pure-plays he believes will have trouble competing in the very promotional holiday environment.

LIKE FLORIDA, BUT LONGER

Cathy David, general manager of Target.com, compares the state of holiday online shopping to the presidential race. "It's like the Florida election," she said, only worse in terms of how long it will take to declare winners. Still, mature e-commerce concepts are starting to evolve. Retailers such as Target are beginning to tap into one of the major benefits of the Web - promoting their dot-com units in places where physical stores don't exist. To make New Yorkers aware of its virtual store, from Nov. 24 through Dec. 15, Target.com is offering free shipping to customers in Manhattan. The site will be backed in the Big Apple with promotions, including one called "Target Tidings." For two weeks, Target will distribute unexpected giveaways to New Yorkers, such as free coffee at a downtown Starbucks, Target logo Santa hats at Rockefeller Center Ice Rink, transit cards worth $3 at a subway station and popcorn at holiday movies.

A number of other retailers, meanwhile, are fine-tuning the link between their dot-com capabilities with their brick presence. For example, Circuit City Stores allows its Web customers to determine whether an electronic item is available in real time at a local store and then to choose between picking up their purchases at the store, or having them shipped. To ensure all customers get the best price, dot-com customers picking up in store get any applicable sales price. About half of Circuit City's dot-com customers prefer store pick-up, according to the retailer.

Sears, Roebuck & Co. is working to extend to the Web the same early morning sales specials it offers in its stores. Retail behemoth Wal-Mart also finally appears to have its dot-com act organized. Its fourth try at a Web site was unveiled last month and is being backed by an offline ad effort, via agency GSD&M, Austin, Texas, which shows a couple picking out gifts online.

'HOME' ON THE WEB

Like a number of other holiday ads, the Wal-Mart ad is of an informational nature, aimed at convincing consumers that online is as good a way to shop as at a Wal-Mart store.

Microsoft's MSN, with a campaign backing itself as "home" on the Web, also is touting the ease of online shopping in an ad campaign. Among the site's features is "Gift Concierge," providing real-time advice from a live representative. McCann-Erickson, San Francisco, created the campaign.

Ads of an educational nature backing online commerce also are coming from outside the e-tail industry itself. Hewlett-Packard Co. is running three spots in an estimated $25 million campaign from agency Goodby, Silverstein & Partners, San Francisco, humorously underscoring the way Amazon.com has changed shopping. The ads resulted from an alliance between the two companies.

In one spot that's meant to show off Amazon's ability to recommend products to customers, a man in line at a doughnut shop asks for a doughnut. Customers behind him suggest different types of doughnuts popular with people who like the same ones he does.

Another shows customers surprised that a store isn't open 24 hours a day, while a third illustrates how a customer can return changed shopping. The ads resulted from an alliance between the two companies. In one spot that's meant to show off Amazon's ability to recommend products to customers, a man in line at a doughnut shop asks for a doughnut. Customers behind him suggest different types of doughnuts popular with people who like the same ones he does. Another spot shows customers surprised that a store isn't open 24 hours a day, while a third illustrates how a customer can return to Amazon after several years looking for the latest CD from a group she discovered several years before.

Amazon also has returned to TV this holiday season with its singing "sweater men." One executive familiar with the situation said Amazon's spending this year is up "slightly" from the $25 million it spent on advertising last year, according to Competitive Media Reporting.

Last year, Amazon's spots featured '60s Mitch Miller-style singers who sang about the time-saving convenience of buying presents online. This year, the singers have one convenience spot but the biggest push, via four spots from agency FCB Worldwide, San Francisco, focuses on the site's selection.

One spot, in which the singers croon "EMAHTSKCBVDT," explains a "new vocabulary word" based on the first letters of product category tabs across the Amazon site. Another spot spells out "hot gifts" for the season and a third, "You'll never guess what I got you," shows a line of wrapped, but easily detected gifts, such as a canoe.

Another Amazon spot focuses on toys, one of the most hotly contested categories both on the Web and off this year by retailers including Kmart and Target. EToys, although financially troubled, has relaunched an existing campaign from agency Publicis & Hal Riney, San Francisco, showing an upper-middle-class couple observing their child building an asparagus fort at the dinner table and then using the site to buy construction toys for the child.

Toys "R" Us, which kicked off the holiday with free shipping through Nov. 22, has postponed plans, at least until next year, for a full dot-com dedicated campaign.

Luxury items also appear to be becoming valuable for online retailers. ELuxury, (www.eluxury.com) owned by LVMH Moet Hennessy/Louis Vuitton SA, has added a Donna Karan boutique. AOL also has added a luxury area to its shopping section.

Even some of the standing luxury pure-plays feel bullish about their holiday positioning. Diamond retailer Blue Nile.com is back on the air in major markets with humorous TV spots from agency Leagas Delaney, San Francisco.

Overall, Blue Nile's ad budget is down "somewhat" from last year's campaign, which had overall spending at $30 million, according to Kevin Keith, director of marketing at Blue Nile. It is also using e-mail to target repeat customers accounting for 15 % of its sales.

POWER OF E-MAIL

"We're more confident than we were last year," said Mr. Keith. He said lessons learned from last year include the ineffectiveness and expense of buying into long-term portal relationships and also of national advertising buys.

Like Blue Nile, retailers also are tapping into the power of e-mail. Walmart.com, for example, kicked off its holiday campaign with an e-mail offering $10 off purchases over $50. The online store additionally is offering free shipping for returns, which also can be made at Wal-Mart stores. Gap used e-mail to offer online customers double points for purchases over $125 made through its new GapCard.

Still, the holiday will provide more pressure than ever for cyber retailers to perform, shaping up their customer service and distribution systems. AOL's Mr. Gates noted e-commerce purveyors are "are getting back to understanding who the consumer is, and getting back to the fundamentals."

Contributing: Patricia Riedman.

Copyright December 2000, Crain Communications Inc.

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