October 30, 2008, 12:00 AM

As the economy sinks, will the sleigh rise?

(Page 2 of 2)

“If you over-promote to get more sales, you slice into your margins. So you have to make a case for doing a promotion,” he says. “One way in this economy is careful messaging. For instance, you can promote saving money on holiday shopping online by not having to buy gas to drive to malls. You’re helping customers see the advantage of shopping at your online store in difficult times.”

When times get very difficult, many retailers look to cut expenses. 48.2% of retailers are reducing the depth of their inventory to save carrying costs, the Internet Retailer survey says. 39% are cutting back on advertising spending, 26.6% are reducing expenses in the fulfillment/distribution center, 18.8% are moving to slower delivery options to reduce shipping costs, and 11.5% are reducing expenses in the customer service operation.

Retailers certainly can trim the fat, but they should be careful not to cut into the online bone, experts say.

“Retail executives are making business decisions today caught up in their personal emotions coming from the whole economic crisis. And where we’re clearly seeing this is a focus on expenses. They’re re-examining everything in their budgets; it’s all about cost control,” Okamura says. “Arguably you can say this is too knee-jerk. What’s key for retailers is that they don’t get so aggressive with cutting costs that they hurt the quality of the online customer experience from start to finish.”

Overreaction

Retailers can stop themselves from aggressively reacting to the economic crisis. They have no control, however, over the mindset of consumers.

“My worst fear is that consumers will overreact-a pessimistic outlook is our worst enemy,” Elliott says. “The more negative people are, the more they will batten down the hatches-even if their own financial situation is OK.”

Based on the unceasing onslaught of bad news, however, it may be too late for many consumers. Though, at least for now, online retail is riding out the storm.

“Even though online has been less adversely affected than stores,” Freeman Evans says, “it’s still scary out there.”

bill@verticalwebmedia.com

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