August 29, 2001, 12:00 AM

A Very Wary Christmas

Online retailers are mastering the issue of fulfillment and delivery; the challenge for this Christmas is attracting buyers to sites.

Last Christmas, luxury goods e-retailer Ashford.com offered free shipping-free next day shipping-on holiday gift orders of more than $100. After an industrywide Christmas shipping debacle the previous year in which too many e-retailers failed to connect shoppers with their orders, Ashford was determined to position itself as a retailer who would do whatever it took to deliver orders by Christmas. And it did-it closed the season with a 99.5% record of successful on-time deliveries.

But that was last year and this is this year and Ashford has pulled in the reins for Christmas 2001. Free shipping now applies on orders of $1,000 or more; everybody else pays $7.95. And that’s not the only difference between last Christmas and the one ahead. While a number of different holiday promotions are “definitely possibilities,” according to Kim Richard, vice president of marketing and corporate strategy, Ashford hasn’t settled on any of them. It is instead looking very carefully at the marketplace and its need to produce profits before committing itself to any promotional offers. “The nice thing about being an e-retailer is the flexibility it gives. We can quickly change the offering to include free shipping or free gift wrap or a number of things-but we’ll assess the need for something like that as we go, and lock it in at the right time,” Richard says.

True, it’s only September-August when Internet Retailer spoke with Ashford. But the luxury goods retailer’s cautious attitude about holiday promotions illustrates what e-retail analysts preparing online shopping forecasts for Q4 already see. “If the downturn doesn’t pick up or eradicate itself until the end of the year, it’s going to be a tough Christmas for retail, period,” says Carrie Johnson, an analyst with Cambridge, Mass.-based Forrester Research Inc. “We can’t predict what the economy will do. But we do know from historical patterns that if we see the beginning of a downturn now-and our most recent index data did show a drop in online retail spending-spending in those product categories will not pick up for a couple of quarters.”

Johnson is not the only analyst hinting at a retail season more suited to Ebenezer Scrooge than Santa-at least, in comparison to the economic boom that the U.S. Commerce Department reports drove Internet sales up 70% last year from Holiday 1999. “Many e-retailers are going into the holiday with inventory levels too high because they anticipated spending levels to be much higher than they have been. We may see a lot of sales, smaller orders. It’s not going to be pretty,” predicts retail consultant Keven Wilder of Chicago-based Wilder and Associates.

That’s not what e-retailers want to hear. The fourth quarter is when retailers traditionally pull in the biggest chunk of the year’s sales. Online sales used to be insulated from the rest of retail’s ebbs and flows, with new users piling onto the Internet throughout the year to give online shopping a try. But the Internet adoption rate has slowed. Increasingly, online sales mirror the seasonality of the offline world, and the impending possibility that the height of the holiday shopping season might coincide with the trough of an economic downturn has more than a few worried.

Washed with the tides

But that doesn’t mean they’re burying their heads in the sand-far from it. While hoping and planning for the best, they’re also preparing for a range of other scenarios. In addition to exercising more caution about promotions that get shoppers to the site by giving away the store, they’re building marketing and merchandising plans that they can adjust to market conditions in real time. They’re focusing on proven products and relationships while dumping those that are less so. And instead of sacrificing on a lot of costly promotions, they’re spending on web site enhancements that shorten the path to sales by making it easier for holiday shoppers to get from search to checkout.

“Whether retailers make this as highly promotional a Christmas as in the past, consumers are going to be looking for value this year,” says Mary Brett Whitfield, director of the E-Retail Intelligence System at PricewaterhouseCoopers. Much of what retailers do online this holiday will be a response to that, whether it’s balancing their assortment to the value end of the scale and expanding lower-priced items or taking the opposite approach and narrowing the assortment to proven and profitable winners.

“The other issue I expect e-retailers to look at this year is customer satisfaction,” adds Whitfield. “Not just with the purchase, but how easy it is to find and buy what they’re looking for. So not only will they be looking for value, but also an improved shopping experience online. To provide that, retailers have been introducing new functionality like top 10 best seller lists and buy-this-outfit features throughout the year, but it will really pay off during the holiday season.”

Ready for Q4

That’s exactly what Federated Direct is hoping for. Federated Direct, the direct-to-consumer division of Federated Department Stores Inc., in July relaunched Macys.com and Bloomingdales.com. The sites are loaded with new shopping tools like the Macys.com’s My Closet feature, a wardrobing tool that makes it easier to put together an outfit online by letting shoppers drag images of products they’ve selected for their closet’s “rack” into a virtual fitting room. As customers combine items of clothing with accessories, the closet keeps a running total of all products in the fitting room, tabulating the cost of selected items. Customers can save “views” of outfits to return to them later-or add items of clothing or the entire outfit to their shopping bag in one click. Macys.com also has worked with Mercado Software Inc. to power up its search capacity. And it has added eight new online designer boutiques with labels ranging from Calvin Klein to Kenneth Cole.

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