Fast off the line, the new-economy entrepreneurial retailers were winded in 2000. Now, the slow-and-steady chains are setting the pace in online retailing, bringing the power of their brands and infrastructure to the web.
With the holiday season the peak sales time for most e-retailers, the last three months of 2000 were effectively Judgement Day for some of those teetering between survival and shut-down. But for the web operations of many multi-channel sellers, it was a time to shine, as fourth-quarter results show.
Five department and discount store dot-coms-J.C. Penney Co. Inc., Wal-Mart Stores Inc., Sears Roebuck and Co., Kmart Corp. (Bluelight.com) and Target Stores Inc. ranked among the 26-most visited retail sites of Q4, as tracked by San Francisco-based Alexa Research. Traffic at the sites more than doubled between October and December, which gave them the highest growth curve of the quarter.
Well-publicized fourth-quarter dot-com crashes start to look like little more than growing pains for e-retail when looking at the holiday performance of the sector as a whole. Precisely how much online shoppers spent from October to December varies depending on who’s doing the measuring. Gomez Advisors, for instance, reports that online shoppers spent $11.4 billion in those three months, up 95% from last year’s $5.8 billion. Others report slightly different numbers, but most agree that the figure was double the previous year. At 1% to 2% of all retail sales, that’s still teeny in comparison to sales in other channels, but the number is expected to keep rising fast. An Ernst & Young study estimates that from 10% to 15% of all retailing will move online by 2005. And if Q4 2000 is any indication, much of the increase will be driven by the web traffic at department and discount stores and other multi-channel sellers.
Fast-rising web sales, for instance, were the star in an otherwise ho-hum holiday performance by multi-channel retailer Eddie Bauer. For the five weeks ended Dec. 30, Eddie Bauer’s overall sales declined 3% from a year earlier-but web sales grew 94% at Eddie Bauer, Newport News and parent Spiegel combined. Web sales growth was likewise some of the best news from a J.C. Penney so sluggish it’s closing stores to boost its bottom line. J.C. Penney saw December sales down almost 2% from the previous year-but e-commerce sales nearly doubled to $65 million.
Trusting the brand
What’s driving more of the consumer dollar to traditional retailers’ web sites? “The rise of department stores on the web is the story of the fourth quarter,” says Marc Engel, e-commerce analyst at Alexa. “They didn’t have as much presence last year. Problems were reported about these sites being slow and not as savvy about what the customer needed. But after major problems at some of the pure-plays, consumers wanted to go to names they trust off-line. They seem pretty willing to give these web sties a chance because they trust the brand.”
For department stores and other multi-channel sellers, “the growth of their web operations is really the bright spot,” confirms retail analyst Paul Ritter of The Yankee Group, Boston. “It’s considered to be where things are going.”
And the numbers are piling up to support that contention. Consumers who shop the web sites of traditional retailers and shop the retailer’s other channels as well are more valuable to the company than those who shop a single channel. While traffic at leading pure-play sellers outstrips that of traditional retailers, the multi-channel shopper buys more.
Just look at J.C. Penney, for example. In 1999, the most recent figures available, customers who shopped the store alone spent an average $194 per year, customers who shopped the catalog alone bought an average $242 in goods, and those who shopped both the catalog and web averaged $502 per year. The most valuable customers? Those who shopped the store, catalog and web combined; they had average purchases of more than $1,000 per year. By comparison, the average order size this last Q4 at web-only seller Buy.com was $158, and at Amazon, about $58.
For some multi-channel sellers, Q4 showed that web sites don’t necessarily have to rack up sales to deliver value; they can be an effective marketing tool for the company, too. With increasing recognition of the web’s power to also influence sales in other channels, “a web site is a must-have for retailers,” declares Jill Frankle, director of retail e-commerce at Waltham, Mass.-based Gomez Advisors.
Sears, for example, ranked as the 11th most-visited retail web site in Q4 as tracked by Alexa Research. Revenues from merchandise and services (excluding Sears’ credit business) were $11.3 billion, up 3.1% for the quarter over 1999. Sears doesn’t break out numbers for online sales, but the company notes that appliances and electronics were leading performers for Sears in the quarter and the year. Could that be because the heavily trafficked Sears.com provides online product specs and price comparisons for these research-intensive purchases to an extent that beats competitors?
“Sears’ web site has become an important tool for consumers to use to look at a product and examine its features prior to coming into the store and making a purchase,” says Joe Grillo, retail analyst with Duetsche Bank Alex Brown. “The impact of Sears’ web site is going to be more robust with respect to web-influenced sales as opposed to actual transactions online.” Its transactions though, are nothing to sneeze at: PC Data says Sears.com ranked No. 6 in buyers.
It’s much the same story at stores such as Target and Wal-Mart, says Ladenberg Thalmann analyst Eric Beder. “Many of the discounters are so big in terms of revenue now that the web site sales aren’t going to have a huge impact,” he says. “The point is that they’re going to drive people into the stores.”
The wrong way