October 31, 2006, 12:00 AM

Shopping Spree

Online retailers have great expectations for holiday traffic and sales.

Despite recent record gas prices and a slowing economy, customers are still expected to open their cyber wallets, dig deeper and spend more time and money shopping online this holiday shopping season than they did last.

The fact that a growing number of consumers will be doing even more of their Christmas shopping online in 2006 has web retailers anticipating a strong holiday buying season, according to Internet Retailer’s latest survey-this one on holiday shopping expectations and preparations.

Each year retailers count on their online holiday sales to deliver big contributions to their overall annual financial performance: 9.5% of all retailers depend on the final months of the year to generate more than half of their yearly sales, according to the Internet Retailer survey. 31.6% report that the holidays account for between 30.1% and 50% of their total annual revenue, while 59% note that the holidays make up between 20.1% and 30% of total yearly sales.

Driven by record gas prices in 2005, more shoppers bypassed the mall, parked their cars, trucks and sports utility vehicles and spent more time and money shopping online. As a result, holiday store sales rose by only 5.7% in 2005 to $438.6 billon, according to the National Retail Federation, while online shopping rose by 25%.

By all indications, web retailers expect 2006 to be another year of strong holiday sales, according to the Internet Retailer survey. The survey was e-mailed in early October to all subscribers of IRNewsLink, the magazine’s newsletter and about 300 responses were collected and analyzed using technology from WebSurveyor, which has partnered with Internet Retailer in a series of surveys on the e-retailing industry. Across the board, web retailers are expecting higher holiday sales this year, in many instances significantly higher. A third of retailers taking part in the survey expect their sales to grow by 25% or more over last year, with 11% expecting their sales to grow 50% or more. 15% expect growth of more than 15% to around 20%.

In recent years, online shopping has been brisk over the weekend and on the Monday following Thanksgiving. In 2006, the Internet Retailer survey finds that web retailers across the board are anticipating another strong Thanksgiving. 67% of web merchants taking part in the research indicate that the time between Thanksgiving and the Monday after Thanksgiving will generate between 10% and 20% of total holiday sales, compared with 16% that say the Thanksgiving weekend and the following Monday account for between 20.1% and 25% of their holiday revenue and 9.4% for more than 25% of Christmas sales.

In 2006, web retailers will also be looking to attract customers with more incentives, especially free shipping. Of the chain retailers, catalogers, virtual merchants and consumer brand manufacturers taking part in the survey, 62% plan to offer their web customers free shipping this holiday season. The survey finds that 9.7% of retailers are planning to increase their shipping charges. Of those merchants that will charge web shoppers more for delivery of their orders, 40% expect to raise rates between 1% and 5%; 26.7% between 5.1% and 10%; 6.7% between 20.1% and 25%; and 6.7% with no plans for an increase.

As expected retailers will also be coming up with more incentives and better site features to keep holiday shoppers motivated and making multiple purchases and repeat visits. The biggest incentive this holiday season will be limited time offers. A total of 47.8% of all merchants participating in the Internet Retailer survey listed limited time offers as their chief incentive to entice web shoppers this Christmas. 16.8% of web merchants have also expanded or added interactive gift registries and 13.4% are introducing or bringing back marketing programs that include downloadable coupons that can be redeemed across multiple channels and rebates that will be applied instantly to an online purchase. According to the survey, only 10% of retailers will add or expand payment options, such as limited time financing and private label credit cards this holiday shopping season, and just 9.6% will initiate or expedite a customer’s ability to use the e-commerce site to locate merchandise across multiple channels. Only 9% of store-based merchants will add or expand a buy-online/pick-up-in-store program.

As expected, the Internet Retailer survey finds that web retailers of all sizes have implemented new technical and design features to draw traffic and convert more browsers into buyers. In fact, many retailers are counting on a completely redesigned web store as their biggest asset to attract online Christmas shoppers. 56% of participants listed a redesigned web site as the top technical and design initiative for this year’s holiday shopping rush. Retailers are also counting on more hardware and integrated e-commerce and back-end systems to meet traffic demands and support customers’ expectations of a trouble-free shopping experience.

In preparation for avoiding trouble and handling more orders, 19.6% of merchants have added servers to handle a heavier load of traffic and transactions, while 18.6% have integrated their order management and inventory systems and 13.1% have tied together their customer contact databases and systems to back-end fulfillment systems. Surprisingly, despite all the industry talk about customer personalization and mobile commerce, only 6.5% of retailers in the survey are adding live chat to their customer service program this Christmas and only 2.7% are engaging in mobile commerce.

But if retailers are spending less on some new technical features and functions, they are putting more time and money into their traditional and online marketing programs. A record 114 million users, a 6% increase over last year’s 107.5 million shoppers, will buy online this holiday season, according to Jupiter Research. But there will also be stiffer competition to attract more repeat holiday shoppers. 61.9% of retailers taking part in the survey will increase spending on paid search and 68.7% are scheduling more e-mail marketing campaigns. 30.6% are also committing more resources to direct mail, while 27.8% are building up their affiliate marketing programs.

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