The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
The retail industry may have gotten the best it hoped for this year (flat sales), but online retailers got a nice surprise in their stockings: Consumers bought online beyond expectations.
Online retailers held their breath as the Christmas shopping season got off. Dire predictions of the state of retailing in this economy gave many retailers a higher degree of uncertainty than they had experienced since the rise of Internet-based retailing in the mid 1990s.
But by the time most consumers had completed their online shopping the week before Christmas, the numbers were looking good. Online holiday shopping had exceeded last year’s level by 12% and maybe even as much as 20% while offline shopping had at best risen by 2% and possibly even declined, depending on who was doing the reporting.
Adding to the uncertainties created by a recession economy were the terrorist attacks of Sept. 11. Shopping dropped 20% the week of the attacks and did not recover to pre-attack levels until mid October, comScore Networks Inc., a company that tracks and measures Internet activity, reported. They sat there until mid November, when web sales began to inch up.
Then suddenly, the week after Thanksgiving, online holiday shopping was in full bloom. The Monday after Thanksgiving, web retail sales were 79% higher than a typical Monday, reported comScore. And in the week that followed, comScore reported that sales broke $1 billion, with steady traffic all five days. Shopping was even stronger than that, the eSpending report by Goldman Sachs, Harris Interactive and Nielsen/NetRatings reported. That survey showed sales of about $2 billion.
Total online retail sales in the fourth quarter reached $10 billion, estimates comScore, 12.5% above last year’s $8.88 billion that the U.S. Department of Commerce reported. Other researchers’ estimates were not ready by press time (Dec. 19), but all said they expected online shopping to remain strong through the middle of the week before Christmas.
The shift to online
The growth in online shopping was clearly a shift from offline shopping to online, as the number of consumers shopping online increased dramatically over last year, far above the increase in actual sales, no matter which company’s figures are the base, reported Jupiter Media Metrix’s Holiday 2001 E-Commerce Index. In the first week of December, two weeks after the start of holiday shopping, the number of consumers shopping online was 45% higher than the previous year, Jupiter reported, reaching 51.7 million shoppers vs. 35.6 million.
And the experience of individual retailers also indicated that consumers are regularly integrating online shopping into their holiday buying. RedEnvelope.com, for instance, reported the first $1 million day in its history on Dec. 10. And it was 40% higher than its peak day last year. BlueNile.com, for another, reported its customer count was up 25% and revenue, 17%. And APL Logistics Inc., which fulfills orders for SmartBargains.com, EthnicGrocer.com and others, said it staffed its fulfillment center around the clock two weeks earlier this year than last year.
While the growing numbers indicate that consumers are more comfortable shopping on the web, they also may indicate that retailers are getting smarter about merchandising on the web. And, in fact, a survey of 100 shopping sites completed just before Christmas shows that more online merchants are adopting offline marketing techniques, says Lauren Freedman, president of Chicago-based consultants the e-tailing group, which conducted the survey for the Direct Marketing Association. For instance, 78% of sites displayed specific Christmas promotions, 35% posted new promotions after Nov. 15 and 85% hosted gift centers. “Online retailers are merchandising better and merchandising closer to the appropriate season,” Freedman says.
In addition, Freedman’s survey showed that retailers are communicating better with their customers; 80% of retailers surveyed in Q4 2001 sent e-mail confirmations of orders vs. 54% the Christmas before.
A measure of online retailers’ caution, however, was the level of stock-outs that the e-tailing group’s researchers encountered; 16% of the sites visited had inventory on back order vs. 6% last year.
Fading into history
The level of consumers shopping online means that the well publicized fulfillment problems of 1999 have pretty much dropped out of consumer consciousness. But even though those problems are now more than 2 years old, the failures in delivery during holiday shopping 1999 continue to haunt retailers. Online retailers learned from the 1999 Christmas shopping season the importance of delivering on time.
But even more importantly, they learned: Don’t promise what you can’t deliver. Online retailers took that lesson to heart this past holiday season: They exceeded their stated delivery promises by wide margins for the five weeks between Thanksgiving and Christmas, says the weekly fulfillment tracking report from Keynote Systems Inc.
For instance, Keynote reported that Kmart Corp.’s BlueLight.com and TowerRecords.com delivered 67% faster than they promised, WalMart.com was 63% faster, Jjill.com, 56%, and OldNavy.com, 54%. BlueLight had promised delivery in an average of 14.5 days but delivered in 4.7; Tower-Records.com promised 10.6 days but delivered in 3.5. “The degree to which retailers are exceeding delivery expectations has been very high, leading to the conclusion that they are setting very conservative expectations,” Keynote reported.
But even e-retailers that didn’t set conservative expectations for the most part met or beat their promises, Keynote says. 800.com, for instance, promised six days and delivered in 5.7; LLBean.com promised 7 and delivered in 5.5.
And they also were very explicit about what shoppers should expect in terms of delivery. By Dec. 15, leading sites such as Amazon and Barnes & Noble had alerts on their home pages that the deadline had been reached for Christmas delivery via standard shipping. Barnes & Noble had even posted a calendar to help customers calculate and visualize the shipping time.
By the end of the shopping season, retailers were confident enough of their ability to fulfill-or so eager to keep consumers shopping-that they were offering explicit assurances that delivery could be met. BlueLight, for instance, guaranteed delivery by Christmas on certain products, promising a $100 reward and a refund of the purchase price if the product didn’t make it in time.