December 26, 2000, 9:55 AM

Carting off Christmas

Don Davis

Editor in Chief

How can it be that e-retailers drew such crowds and rang up such hefty holiday sales, only to see their stock prices nosedive in the early weeks of 2000? One reason is Wall Street’s growing im-patience over the fact that so many con-tinue to lose money. But performance is surely another.

One observer suspects that the rate of abandoned shopping carts-already an astounding 60% before the holidays-increased another 10% during the season. “The trying out of the Net was great, but so was the frustration of online shoppers,” says Will Ander, a partner at McMillan|Doolittle, a retail consulting firm in Chicago.

On the surface, Web stores experienced massive increases in sales over last year. BizRate, an online consumer rating service, reports a 434% increase in sales among the sites it tracks, while a study by the Boston Consulting Group estimates that Web sales leaped 230% over Christmas 1998. Ernst & Young’s seasonal tally checks in at $10 billion to $13 billion, compared to $4 billion in 1998.

But the new business will come at a cost, as fulfillment and service glitches marred the season for many shoppers. What’s more, e-retailers chased off even more sales due to poor site performance. Andersen Consulting estimates that a quarter of online shopping trips ended in “no sales,” thanks to site crashes and overloaded ordering systems. On the fulfillment end, several major toy sites failed at shipping on time and handling customer complaints.

After suffering site delays in November due to heavy traffic, Toysrus.com conceded it could not fill many online orders by Christmas-including those placed before its announced holiday order cutoff date. To make matters worse, the company now faces a class action lawsuit alleging it accepted orders it knew it could not deliver.

But Mike May of Jupiter Communications contends that Toysrus.com won’t be hurt in the long run. In fact, he says the company has shown the industry that there is huge online potential for brick-and-mortar stores. The name recognition and large customer base of established offline stores drives traffic to their sites. “Customers are gravitating toward names they know,” says May. “Maybe that’s why online retail stocks are lagging; they can’t dom-inate if they exist only in one channel.”

Other legal problems loom for sites with fulfillment woes. The Federal Trade Commission is investigating wayward e-retailers under the Mail Order Rule, which says merchants must ship orders within 30 days or during the period specified when orders were placed.

David Cooperstein of Forrester Research says it’s time for retailers to get serious about online shopping as a sales channel. “They need to manage it as well as or better than their physical stores, because the problems are so widely publicized.”

Some problems also fall back to shoppers themselves. People familiar with the Web generally had more success than did newcomers, says Ander. “People who knew what they wanted and had a background with the Net were more comfortable and had more luck.”

Meanwhile, not every e-retailer did well at the cash registers. After lackluster sales, Value America laid off nearly half of its 600 employees and bid farewell to cofounders Craig Winn and Rex Scatena. The online retailer also dropped all of its non-technology-related products to focus exclusively on computers, electronics and office products.

These stumbles mean Internet retailing still has ground to cover, yet BizRate says more than 8 in 10 customers plan to shop online again. McMillan|Doolittle’s Ander wants to see e-retailers work on the remaining 20%. “The Internet is an exciting vehicle for shopping,” he says, “but across the board there was a lot of struggling.”

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