Online holiday sales retreat from previous years' pace - Brief Article - Statistical Data Included

In contrast to the last three seasons, the once exuberant online holiday selling season will likely serve as the industry's most striking example of "negative growth." Following the events of Sept. 11, several firms, such as Jupiter Media Metrix, have toned down early sales forecasts. Jupiter, for example, now anticipates that online holiday retail sales will ring up $10 billion, a 15% increase over 2000, and the combined online holiday retail and travel sales figure will be $11.9 billion, up 11%. This compares to sales spikes of 54% in 2000 and a staggering 126% in 1999.

Online sales growth has slowed faster than Internet pundits had collectively predicted in the Internet's golden days. In fact, e-commerce sales now stand little to no chance of reaching the trillion-dollar mark by 2003, a time frame put forth merely two years ago by companies such as International Data Corp. and the University of Texas.

In a recent report, Jupiter referred to the slowdown in growth as a "blessing in disguise," reasoning that modest growth expectations allow retailers to scale their businesses to balance consumer expectations and profitability.
Despite the slowdown, e-commerce has not come to a shrieking halt. The Yankee Group analyst Paul Ritter, who predicts a modest single-digit increase of 7% to $9.5 billion, points out that there are still certain growth factors in the sector. Each year, more and more consumers warm up to the idea of shopping online. Jupiter anticipates 10 million more people will buy gifts online this holiday, to total 46 million, up from 36 million in 2000. That said, the traffic boost will likely be offset by shrinking holiday budgets.

And contrary to earlier speculation, the "bunker mentality" is not deterring consumers from frequenting stores. A recent Goldman Sachs, Harris Interactive and Nielsen/NetRatings survey found that 78.3% of this year's holiday shopping will be done in the stores, down slightly from 79.9% in 2000.

Since the mass exodus from the stores to the online channel never took hold, retailers have spent the better part of 2001 trying to quantify the effects of their online business on their stores.

Over the course of 2001, a lot of retailers stopped looking at their online divisions as a separate part of their business, said Jupiter analyst Rob Leathern. The change in corporate philosophy prompted retailers such as Staples, Kmart and Wal-Mart to reel their previously spun-off Internet in-house. Now under the umbrella of a public company, Internet businesses such as Walmart.com and BlueLight.com did away with drains on their budgets, such as free Internet access for customers, a mainstay of the original BlueLight marketing campaign.

Online sales last holiday trumpeted the bricks-andclicks model as the winning formula. Analysts such as Leathern note that throughout the year, consumers have continued to gravitate toward multichannel players.

Ritter went so far as to suggest Amazon is adapting its business model to that of a bricks-and-clicks player through partnerships with Toys "R" Us, Borders, Circuit City and Target. The multichannel approach offers retailers a greater opportunity to capture more market share.

Jupiter research shows that for every dollar spent online, consumers spend another $5 in the stores as a direct result of online research.

Best Buy's own consumer research revealed 80% of consumers surveyed preferred to buy in the store rather than through a catalog or online. Moreover, the research function of Bestbuy.com served to enhance the consumer's experience in the store, said president and ceo Brad Anderson at the International Mass Retail Association's holiday press conference. "'What we discovered over 2001 is that it is truly a clicks-and-mortar strategy."

While retailers have inched closer to a successfully integrated multichannel approach this year, the events of Sept. 11 have thrown them another curveball in terms of fulfillment. Several retailers have set earlier cut-off dates for shipping. Toys "R" Us gave a ballpark date of Dec. 10, a little on the early side compared to past years. Leathern said the earlier dates come after some retailers faced fines from the Federal Trade Commission for failing to deliver on time. "There's an increased sensitivity that external factors-such as shipping- maybe more of an issue because of current events," said Leathern Amazon's in-store pickup deal with Circuit City may help offset sales lost from fewer selling days, said Ritter.