November 1, 2001, 12:00 AM

Fear and the economy

Even a bad economy won’t keep people offline, say researchers. Online buying may enjoy a record year as consumers stay home more to shop and fear to travel, meaning no person-to-person holiday gift delivery.

There’s no doubt that the world-altering events of Sept. 11 and the follow-up response from the U.S. have changed the future of online shopping. The acts of Sept. 11 had their desired effect: They terrorized the U.S. population. Many retailers and retail consultants believe that consumers now will be more cautious about venturing to places where crowds congregate and about flying. The result: They will stay home more and turn to the Internet more to do their holiday shopping. “Had we not had this tragedy, the Internet would have continued to experience solid, steady growth in market share,” says Elissa Myers, president and CEO of the 26,000-member Electronic Retailing Association. “But now growth will be accelerated.”

In the wake of the attacks in Washington, D.C., New York and Pennsylvania, the National Retail Federation revised downward its estimate of retail sales growth. It is now projecting fourth quarter growth of 2.2% and holiday growth of 2.5% to 3%. It had been expecting growth of 4%. Columbus, Ohio-based Retail Forward Inc., the former PricewaterhouseCoopers Retail Intelligence System, is predicting an even more grim holiday season: growth of 1.5%, a steep drop from last year’s 4.5% growth. Many are widely expecting this year’s holiday sales period to be the worst since the recession of 1991.

But the web is a different story. For instance, BizRate.com Inc., which tracks web traffic and offers a comparison shopping site, is expecting 25% growth in web-based retail sales during the fourth quarter. “We’ve already seen a seismic shift in the way people are behaving,” says Chuck Davis, president and CEO of Los Angeles-based BizRate. “There was a big fall-off the week of the incident, but within a couple of weeks we’re almost back to par. The same can’t be said of offline sales.”

Similarly, Retail Forward is predicting online sales will reach $11.5 billion in the fourth quarter, 29% higher than last year’s fourth quarter. “Even though the economy is weakening, we’ll see continued growth in retail e-commerce sales,” says Frank Badillo, senior retail economist with Retail Forward. Fourth quarter 2000 online sales totaled $8.9 billion.

Gradual recovery

If Q4 online sales are to grow over last year’s, they’ll need to do some recovering. Since Sept. 11, there has been a gradual return to shopping online, although the size of the recovery depends on who’s dong the measuring. ComScore Networks Inc., for instance, reported that sales of hard goods on the web three weeks after the attack were only at 78% of their level before the attack, while BizRate reports that online selling had recovered 90% or more of volume. And individual retailers were reporting quick recoveries. “The week of the event, retailers suffered, but by the following week, people recognized that they had to go back to some kind of normalcy, if for no other reason than they were running out of product,” says Chris Hauser, vice president of operations at Drugstore.com. “People were back into their normal mode of ordering goods from us.”

Further, an informal poll three weeks after the attack of the members of the Electronic Retailing Association, which represents online retailers as well as direct TV and direct radio sellers, showed that shopping levels were at about 80% of where they were before the attack. “The products that are doing well are home-related products,” Myers says. “Cooking, housewares, home and garden, beauty-small, discretionary expenditures that represent the vast majority of products sold in electronic shopping.”

That growth will only continue, observers says, spurred by a number of factors. Record numbers of consumers have turned to the Internet for information since Sept. 11. Gift-givers who were planning to travel over the holidays and deliver their gifts in person are now not as likely to travel. Even those who do travel will not want to deal with the hassle of having their gifts subject to security inspections. Some are afraid to go to crowded locales and the state of the economy may even cause some to turn to the Internet as a way to keep a rein on their spending and to comparison shop easily.

From news to shopping

Others note that consumers are more likely to shop online because the overall Internet shopping experience has improved in the last two years, from greater product diversity to higher assurances of on-time delivery. And on top of all that, say yet others, Internet retailing has gained momentum over the past few years and that will continue to draw people online. “25% of the adult population has shopped online; that’s a threshold number,” Davis says. “There’s no turning back.”

The reliance that Americans placed on the Internet as a source of news bodes well for shopping, says Badillo of Retail Forward. “What will make retail e-commerce take off is when consumers make the Internet part of their everyday lives,” he says. “With the events of Sept. 11, people have turned to the web for information. People are going to the computer more, they’re less likely to travel, so they’re looking for a different diversion. It may allow them more time to spend online.”

Certainly the expected decline in travel will be one of the biggest factors in boosting online shopping. The Gallup Organization reports 43% of Americans are less willing to fly than they were before Sept. 11. “People who would have delivered gifts personally won’t be traveling to see Aunt Sarah in Minnesota this year,” says Jay Foran, vice president of Cleveland-based retail consultants LakeWest Group.

Furthermore, with heightened security at airports, airlines encouraging travelers not to carry on baggage, and security guards scrutinizing carry-on luggage more closely than ever, even those who do travel are likely to send their packages on ahead, via UPS, Post Office or Federal Express. “Who’s going to want to drag all that stuff through security?” Foran says.

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