Digital Media

Retail e-commerce posted its first quarterly decline in at least eight years, during the normally robust fourth-quarter holiday shopping season, according to a report released Thursday by ComScore.

During the fourth quarter, retail e-commerce sales fell by 3 percent to $38 billion, compared with a year ago.

"I thought things would be flat, so this was a little worse than I thought," said Gian Fulgoni, ComScore chairman.

He attributed part of the decline to fewer post-Thanksgiving shopping days in November last year, compared with the same time in the previous year when there was nearly one full additional week.

Retail e-commerce, however, was up 6 percent for 2008, compared with the previous year. And within the various e-commerce sectors, video games, consoles, and accessories--historically the strongest performer for the past few years--posted a 29 percent year-over-year increase.

(Credit: ComScore Inc.)

Music, movies, and videos, excluding those that are downloaded, fell 23 percent for the year, marking the worst performing category. Fulgoni noted that that category has historically performed the worst among the e-commerce categories.

Office supplies, which declined 10 percent, and jewelry, which fell 12 percent, posted gains over the past years, but this time around moved into the red as the recession took a number of companies out and made disposable income scarce.

And Fulgoni surmised that the 8 percent decline in online book sales could be tied to fewer people traveling by airplane and needing reading material to take on board.

While the fourth quarter marked the first time retail e-commerce sales encountered a quarterly decline, the industry has been posting shrinking sequential growth on a quarterly basis since the fourth quarter 2007.

"Gasoline and food prices began to go up with inflation in the fourth quarter of 2007, sucking away disposable income," said Fulgoni, who noted disposable income is predominately used for online purchases.

Staples such as groceries and necessities like fuel and energy are largely sold offline and, as a result, helped to prop up total retail sales during late 2007 and the first half of 2008, while growth in retail e-commerce sales continued to decline, Fulgoni said.

ComScore expects to release its January retail e-commerce results next week and Fulgoni said he's keeping his fingers crossed a little bit of growth will be reflected in the results.

"Gasoline prices are beginning to drop and that may put a little money in people's pockets," Fulgoni said. "But what may hurt us is the growing unemployment rate."

Over the next few days, a picture of holiday sales will begin to materialize.

One of the first reports to surface doesn't sound incredibly painful until specific categories--like electronics--are broken out. And then the hurt becomes obvious.

MasterCard Advisors, a unit of the credit card giant, released on Friday its SpendingPulse analysis of national retail and service sales for the holiday-shopping season.

Overall retail sales year over year (excluding gasoline, which doesn't make a great holiday gift anyway) were down 2 percent in November and down 4 percent from December 1 to 24.

Overall, e-commerce fared relatively well from November 1 to December 24. It was down just 2.3 percent, reflecting the overall national trend. That seems to be in line with Amazon.com's positive report of its own sales.

The electronics and appliance category, however, showed a 26 percent decline over 2007. This category will become more interesting when sales figures for specific types of electronics become available.

So-called luxury sales, including jewelry, were down more than 34 percent year over year. Clothing sales were down about 20 percent.

Michael McNamara, a SpendingPulse vice president, didn't mince words. "A difficult economic environment combined with unfavorable weather during the last week of shopping made 2008 one of the most challenging holiday shopping seasons in decades," he said in a statement.

Holiday spending on electronics for family members remains high on the to-do list, according to a survey by IDC and the National Research Network (NRN).

According to results from a survey of more than 3,000 consumers, 62 percent indicated they planned to spend the same amount or more on electronics for family members this holiday.

Those surprising results come as big-box electronics retailers face a challenging time. Best Buy announced a 77 percent drop in earnings and call for employee buyouts earlier this month and Circuit City filed for Chapter 11 bankruptcy last month.

Nonetheless, consumers are maintaining their holiday spending level for family members. Portable media players and digital cameras performed well over the holiday weekend that wraps in Thanksgiving, and high-definition TVs were expected to be the top electronic sale items between now and the end of the year, according to the survey.

"Consumers are shifting to staying, or nesting, at home more," Randy Giusto, IDC general manager of client and consumer markets.

The survey also found that while 25 percent of those surveyed shopped for electronics over the Thanksgiving holiday, 50 percent plan to buy electronics before the year's end.

Consumers plan to account for these recessionary times by reducing the frequency of eating out, and 38 percent of survey respondents noted they expect to spend less on gifts for co-workers.

Update at 1:38 p.m. PDT, with additional details from the ComScore report.

Online shoppers put a stranglehold on their wallets in the first several weeks of November, marking the first historic decline in e-commerce sales, according to a ComScore report released Tuesday.

Market researcher ComScore said online shopping declined 4 percent during the first 23 days of November, compared with a comparable time period last year.

During the first 23 days of the month, ComScore said online retailers rang up a total of $8.19 billion in sales.

For online retailers, growth in e-commerce sales had been steadily declining since last December and finally slipped into the red this month, said Andrew Lipsman, a ComScore spokesman.

Gian Fulgoni, ComScore chairman, said in a statement that the recession has taken a toll on e-tailers:

Despite the recent reprieve that plummeting gas prices have given American consumers, the depressed and volatile stock market, declining housing prices, inflation, and the weak job market all represent dark clouds hanging over their heads this holiday shopping season.

With consumer confidence low and disposable income tight, the first weeks of November have been very disappointing, with online retail spending declining versus a year ago. It's also likely that some budget-conscious consumers are planning to wait to buy until later in the season to take advantage of retailers' even more aggressive discounting.

ComScore expects the combined November-December holiday selling season will ultimately break even when compared with the same two-month period last year.

E-commerce has risen 9 percent year to date, according to the market researcher. That growth rate, however, is substantially less than the 19 percent posted last year.

The results of the ComScore report were initially reported in the New York Times.

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.