Business Tech

It may not be happy holidays for the retail industry overall. But the Web should provide one bit of good cheer.

Retail sales will probably be flat this holiday season, but online sales are expected to reach $44.7 billion, an 8 percent jump over last year, according to the latest data from Forrester Research.

Among 4,000 online consumers surveyed, 94 percent have made a purchase online in the past three months and plan to do the same for the holidays. As for retailers, 72 percent of those questioned for the third-quarter Forrester report "The State of Retailing Online," said they expect holiday sales to increase over last year.

But to cope with the down economy, online stores will try to weigh customer demand against the need to boost profits, says the Forrester report "US Online Holiday Retail Forecast, 2009," released Monday.

"Despite the lingering effects of the recession, the online space remains the retail industry's growth engine," said Sucharita Mulpuru, Forrester Research vice president and principal analyst, in a statement. "What's different this holiday from past years is that online retailers will manage to the bottom line, which will change some of the tactics they have employed in the past."

Retailers on the Web will offer sales and discounts as always, but of a more limited time and quantity. Automatic free shipping may be jettisoned in favor of free shipping only above certain price levels, says Forrester.

To drive business, online sellers may also take advantage of new trends. More detailed product information will be available, as will social networking tools that let customers share purchasing advice with friends and family.

"Tighter offline inventories may benefit the online channel as consumers go to the Web looking for products--and prices--they can't find in stores this holiday," said Mulpuru. "Online retailers will be ready for them with a special focus this year on engagement and service."

This was originally posted at ZDNet's Between the Lines.

Circuit City said Friday that it is in talks with "two highly motivated and interested parties" about selling the company as a going concern. Meanwhile, Best Buy, the largest electronics retailer in the U.S., reckons it continues to take market share.

Circuit City asked the bankruptcy court to approve procedures that officially would sell Circuit City in total, by business units, or by assets such as inventory.

In a statement, Circuit City said:

These interested parties are considering providing additional financing to allow the company to sustain operations and move forward with a subsequent restructuring through a stand-alone plan and/or purchasing the company or all or substantially all of the company's assets. The parties have substantially completed due diligence and now are in negotiations with the company and the company's major stakeholders in order to finalize such a transaction. While the company is optimistic that a transaction can be successfully finalized, no assurance can be given that this will occur.

If these transactions don't occur by Jan. 16, Circuit City could liquidate.

Separately, Best Buy narrowed its financial outlook. Best Buy on Friday said its holiday revenue was in line with revised expectations, but same store sales fell 6.5 percent.

The electronics retailing giant made the announcement at the Consumer Electronics Show.

By the numbers:

• Revenue was up 4 percent for the month ending Jan. 3 to $7.5 billion, in line with expectations.
• Best Buy narrowed its earnings targets. The company is predicting fiscal 2009 earnings to be $2.50 to $2.70 a share, excluding a $111 million investment impairment charge. The company had projected 2009 earnings between $2.30 and $2.90 a share.
• The company will take a fiscal fourth quarter charge of $60 million for its voluntary severance program.

Here's the breakdown of sales by category:

Here's a little statistical cheer for online retailers bracing themselves for what many have been predicting will be a dismal holiday sales season.

The latest online retail spending report released Tuesday by ComScore shows that consumers last weekend spent almost double what they spent on the corresponding weekend before Christmas last year. U.S. consumers online spent $677 million last weekend, December 20 and 21, compared to $341 million the weekend before Christmas in 2007, which was December 22 and 23.

It should be noted, however, that there are five fewer days this year between Thanksgiving and Christmas, making it harder to make perfect year-to-year comparisons. For example, the $677 million in sales last weekend--which was also the fourth weekend after Thanksgiving--is actually down 17 percent from last year's corresponding fourth weekend after Thanksgiving, December 15 and 16.

Whether you see the glass half full or half empty, the statistics suggest "that many consumers opted for the cozier confines of online shopping rather than having to brave the severe cold and snowstorms affecting much of the northern half of the country," ComScore Chairman Gian Fulgoni said in a statement. He added that the compressed shopping season probably resulted in some consumers buying online later than they did last year.

Regardless, the report is further evidence that holiday sales aren't a total disaster and might even be holding their own, which is no small feat in the throes of a recession. U.S. online spending to date this holiday season (from November 1 to December 21) totals $24.71 billion, down 1 percent from the corresponding timeframe last year.

Considering we're in the throes of a recession, online holiday sales appear to be generally holding their own.

(Credit: ComScore)

Best Buy lowered its fiscal-year earnings forecast on Wednesday, citing fears that consumers will keep their wallets under lock and key during the holiday-shopping season.

Best Buy, which saw its archrival Circuit City file for Chapter 11 bankruptcy on Tuesday, said uncertainty surrounding consumer spending has made it difficult to project revenue for the rest of fiscal 2009, which ends February 28, 2009.

Uncertainty usually scares investors, who pushed Best Buy's shares down a steep 10.85 percent to $21.29 a share in early morning trading.

Best Buy CEO Brad Anderson sized up the current situation with this statement:

Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen. Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year.

We're beginning to adjust our cost structure to restore earnings momentum and still gain market share.

The electronics retailing giant cut its fiscal-year revenue guidance to between $43.7 billion and $45.5 billion. It lowered its estimates for earnings per share to $2.30 to $2.90. And sales at stores opened at least a year, or comparable sales, are expected to drop between 1 percent and 8 percent for fiscal 2009.

Back in September, Best Buy was projecting fiscal year revenue of $47 billion and earnings per share of $3.25 to $3.40. It also previously predicted that comparable store sales would rise 2 percent to 3 percent for the year.

But with its September same store sales falling 1.3 percent over the same period last year and its October same store sales dropping 7.6 percent year over year, the first two months of its fiscal third quarter are expected to put a drag on the electronic giant's holiday season.

For the remaining four months in its fiscal year, Best Buy is expecting comparable sales to drop anywhere from 5 percent to a whopping 15 percent.

Best Buy President Brian Dunn put the situation in historical perspective:

In 42 years of retailing, we've never seen such difficult times for the consumer. People are making dramatic changes in how much they spend, and we're not immune from those forces. That's why it's critical that we manage our spending, while preserving key growth initiatives.

While many retailers are understandably nervous about what this holiday will bring, none is likely more so than Circuit City.

Blockbuster rescinded an offer to buy the beleaguered chain earlier this year and its CEO stepped down in September. Its stock has been languishing below $1 for long enough that the company has been notified it could be delisted from the New York Stock Exchange. And now the company has been forced to close 155 stores right before the crucial holiday sales period because of the dearth of credit available in the market right now.

(Credit: Circuit City)

For all intents and purposes, it appears the nation's second-largest electronics retailer is on the verge of disaster. Even if this season's sales results end up not being as bleak as some are predicting, it's unlikely even that could save Circuit City at this point. Circuit City did not respond to a request for comment for this article.

Though Wall Street analysts who watch Circuit City closest aren't ready to go on record to go on a death watch for the electronics chain, suffice it to say, its pulse is getting weaker and things aren't looking good.

The global credit crunch is hurting Circuit City in particular. The retailer buys TVs, stereos, laptops, and other gadgets on credit, usually at a good rate from vendors with the promise to pay it back once the company sells the goods in its stores. But as the company has racked up huge losses, vendors are not giving Circuit City reasonable financing rates. Though Circuit City hasn't come out and said so, some vendors could be convinced altogether that the retailer flat out won't be able to pay the money back and could decline to send Circuit City any products at all. At that point, it becomes almost impossible for Circuit City to operate.

Because of this, the business model of Circuit City and other electronics retailers doesn't work without very fast growth. And sales of many of the big-ticket items like notebooks, flat-panel TVs, and even gaming consoles (it's the first year in awhile there won't be a hot, new, hard-to-get console), are tapering off.

No doubt, the slumping economy is causing some consumers to be more conservative about purchases this year. Consumers polled by the Consumer Electronics Association say they plan to spend $200 less this year than last on holiday items.

Add to that a fundamental shift in the way media is consumed--more online video and digital downloads, slowly moving away from packaged media and accompanying players--and the future of the electronics retail business doesn't look so bright. As prices drop, it gets harder to grow business. And without that growth, it's impossible for Circuit City to pay back those loans, much less suddenly become profitable, said one analyst who asked not to be quoted. ... Read more