November 28, 2003 4:00 AM PST

Holidays push online shopping toward mainstream

As someone who buys merchandise for several Las Vegas boutiques, Adelle Cuaron knows a thing or two about shopping.

And this holiday season, her personal gift buying involves avoiding store lines and sticker shock.

"I can't go in and out of shops this year and spend a lot of money. I'm shopping online to get the best deal," Cuaron said.

Though she plans, for the first time, to devote most of her budget to Web shopping, she says she's slightly nervous about identify theft, given reports of e-commerce related credit card fraud. She says, however, that she's "got to do it."

Cuaron is one of millions of fresh devotees to online shopping this holiday season--new customers expected to drive e-commerce's double-digit percentage growth through November and December. She's also part of a trend among Web surfers to scout for bargains online. Traffic to sites designed to let people compare prices and find the best deal has leaped by more than 100 percent in the last year.

News.context

What's new:
Mainstream consumers are shopping online like never before, thanks to greater comfort with Net retailers, better service and potential savings from using price-comparison services.

Bottom line:
E-commerce sales are expected to hit $16.8 billion during November and December, an increase of 21 percent from last year. Online retailers expect a windfall from as many as 64 million shoppers on the Net.

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More broadly, e-commerce sales continue to rise as mainstream consumers go online and get more comfortable using their credit cards on the Net. U.S. consumers are expected to spend about $16.8 billion online during November and December, an increase of 21 percent from the same period in 2002, according to Jupiter Research. That's partially thanks to the number of people shopping online, up by 10 million this year to 64 million.

In fact, e-commerce has shined similarly in past years, despite the economic doldrums and a technology slump. In 2001 and 2002, when U.S. consumers were clinging tightly to their wallets because of troubled world affairs and a rising unemployment rate, online sales grew by an average of 20 percent each holiday season, according to estimates. And as the e-tail business has stabilized, with fewer dot-coms going out of business and improved technology, more and more people have opened their eyes to the convenience and potential savings of virtual storefronts, especially with many products shipped free and without taxes.

"Online shopping is sort of the diamond in the rough of the Internet, with double-digit percentage increases year-over-year even through the burst of the bubble," said Patti Freeman Evans, retail analyst at New York-based Jupiter.

"The longer someone has been online is one of the best predictors of whether they'll shop online or not," Freeman Evans said.

Still, online retail sales figures add up to only a fraction of figures for offline sales. This year, analysts expect online figures to reach just 3 percent of the $217.4 billion seen in offline sales, according to the National Retail Federation. Online figures are up about 1 percentage point from last year, compared with an expected increase of about 5.7 percent in offline sales, according to the NRF.

The online boost is largely due to new Net consumers and slight growth in the amount of money people are spending online. Consumers will spend an average of $274 with online retailers, up about $10 from last year, according to Jupiter.

Many of the frustrations of online shopping have slowly melted away as well. In years past, e-commerce outfits have struggled to fulfill orders in time for the holidays or have been ill-prepared for demand, with insufficient bandwidth, technology glitches or shoddy security. That's helped fuel consumer aversion to online shopping. But now e-tailers have improved the experience, and consumers have grown to trust many established retailers. Many retailers have improved their ability to turn around orders, and that's given shoppers confidence to shop online later and later, according to Jupiter surveys.

New dynamics
This year, analysts point to several new trends in online shopping. One is that for the first time, there are more women shoppers than men. Forrester Research reports that about 52 percent of online consumers are women.

That could mean strong growth for retail categories that are attractive to women, including apparel, health and beauty and jewelry. Those categories will grow faster than other proven product categories such as books and computer hardware, said Carrie Johnson, senior analyst at Forrester Research, a firm that tracks trends on the Internet. For example, sales of health and beauty products have grown by more than 93 percent in the last year, compared with growth of 13 percent for computer hardware and 30 percent for books, Johnson said.

"These are the new stars of online retail, and books and computer hardware are shining less brightly than they have in the past," Johnson said.

Typically, the hottest products online are consumer electronics, computer hardware, books, apparel, toys and music.

Next, more mainstream consumers are shopping online, helping drive sales for retail titans like Wal-Mart and Target, analysts say. In addition, more and more brick-and-mortar retailers are letting people pick up items in their stores once they've purchased them online, a perk consumers like. Sears, for example, has said that 40 percent of its online customers pick up products in the store. Others with in-store pickup include Circuit City, Best Buy and sports retailer REI, which is offering it for the first time this year.

Offline retailers are also using promotions to drum up holiday business. Sears, for example, is offering sale prices at its Web store on Thanksgiving, a day before savings start offline. The retailer expects the promotion to help one-day sales on Sears.com and Landsend.com, its other online property, to surpass $5 million, combined, for the first time.

For the year, the company expects online sales to grow 40 percent compared with 2002. Holiday sales should grow at about the same rate, Sears spokesman Bill Masterson said.

"We are really committed to being a multichannel retailer," Masterson said. "We make the catalogs and the Web site as really integrated as seamlessly as possible with our stores."

As a result, online heavyweights such as eBay and Amazon must fight to prove to inexperienced Net users that they're as trustworthy as traditional businesses, analysts say.

eBay, for example, has launched several new holiday promotions (and brought back some from last year). New this year is a Secret Santa gift exchange program that lets participants invite friends and family to join their online gift exchange group and set up wish lists. eBay assigns each participant a gift-giver. Also new is eBay gift certificates, a feature the company launched in October in anticipation of the holidays. The company has also used television advertising to reach mainstream shoppers for the past two years.

eBay spokesman Chris Donlay declined to make a forecast of eBay's holiday sales, but he said business is sure to be on the upswing. "Every quarter does go up, so I think we'll see the same thing," he said.

Amazon.com, the Web's largest retailer, expects double-digit growth in the fourth quarter. According to its financial guidance for the three months to December, it expects sales of between $1.76 billion and $1.91 billion, up from between 23 percent and 34 percent in the fourth quarter of 2002.

The Seattle-based company recently launched a new marketing campaign for the holidays, enlisting celebrities to promote original music, art and videos sold exclusively on Amazon. Participating in the "Holiday A-List" promotion are singer Bruce Springsteen, actor Michael J. Fox and the country music trio the Dixie Chicks. The exclusive content is on sale through the end of the year.

Price comparison sites such as Shopping.com, Pricegrabber, BizRate and others are expected to benefit this year from a surge in retail sales. More and more people are hunting for the best price on products and are turning to these sites for advice on where to shop. Price comparison sites get referral fees each time they send a shopper to buy at an online store.

Yahoo has made product comparison shopping and search a marquee piece of its Web site in recent months. In September, it relaunched Yahoo Shopping with more than 50 million product offers from more than 150,000 merchants. Before that, it featured only 10 million product offers from about 17,000 merchants. Joining a pack of comparison shopping sites such as Shopping.com and Pricegrabber.com, it also added technology for consumers to compare products from various online sellers.

In one of the biggest signs of its commitment to shopping, Yahoo added product search to its home page. That's helped it grow traffic to shopping services by about 30 percent since September, company spokeswoman Stephanie Iwamasa said. The company does not forecast expectations for retail sales.

Still, despite the rosy outlook, the biggest concern for online retailers is ensuring they have the inventory.

"Last year...was a strong year, but it was a little dicey because the mood of the country was somber," Freeman Evans said. "This year, retailers are playing it close to the chest in terms of inventory levels--it's important for them to be in stock with the right merchandise. The thing about this year is it's all good."

 

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