December 1, 2010, 12:00 AM

With a strong third quarter in the books, analysts project healthy online holiday sales

Online retailers heading into the heart of the holiday season were buoyed in mid-November by a strong report on third quarter e-commerce sales from the U.S. Commerce Department and two bullish holiday forecasts from analysts.

It’s far too early to break out the confetti, but online retailers heading into the heart of the holiday season were buoyed in mid-November by a strong report on third quarter e-commerce sales from the U.S. Commerce Department and two bullish holiday forecasts from analysts.

The Commerce Department report released last month gave further proof that online retail is on a steady growth curve. E-commerce sales increased nearly 13.7% during the third quarter from the same period a year ago and captured 4.2% of total retail sales, a new record for e-commerce, by the Commerce Department’s reckoning. Total seasonally adjusted Q3 e-commerce sales reached $41.53 billion, up from $36.54 billion a year ago.

That made for the fourth consecutive quarter of double-digit growth for e-commerce, following the slump that began with the financial crisis of late 2008. Although the 13.7% growth rate is lower than the 14.5% average of the previous three quarters, the third quarter faced a tougher comparison, as it was during Q3 2009 that e-commerce first posted positive growth of 1.7% after three quarters of reduced online sales.

The 13.7% growth rate also was more than double the 6.0% growth rate of total retail sales reported by the Commerce Department. The U.S. agency estimates seasonally adjusted total retail sales during the third quarter were $978.73 billion.

Spending moves online

“The data underscores yet again the secular shift from offline to online spending,” says Colin Sebastian, an analyst for Lazard Capital Markets who covers e-commerce stocks. “Despite some lingering macro-level hesitation on consumer spending, e-commerce companies should feel good about this year and the return to growth.”

While the Commerce Department estimates the web accounted for 4.2% of Q3 retail sales, that includes sales in categories not commonly bought online—automobiles, fuel, grocery and restaurant meals. When excluding those categories, Internet Retailer calculates that e-commerce accounted for 7.5% of retail sales during the third quarter, up slightly from 7.3% in the second quarter.

Those healthy sales last quarter can only be a good omen, but the big question for online retailers is how the holiday season will turn out. And on that score, two analyst firms released optimistic projections last month.

Forrester Research Inc. predicted online retail sales growth for the holiday season of nearly 16% year over year, thanks in large part to strong spending by affluent consumers. Consumers in November and December will spend $51.7 billion for online purchases, up 15.7% from $44.7 billion for the same period last year, Forrester expects. The research and consulting firm also projects strong overall holiday retail growth of 13%.

Much of the growth for online holiday sales this year will come from affluent buyers, Forrester says. 87% of U.S. consumers who make at least $100,000 a year plan to spend more or the same amount of money online as they did last year. Consumers earning less are less likely to spend as much online this year as last year.

“As affluent online buyers bring more purchasing power to the ’Net than other income groups, this difference in response supports our robust growth forecast,” says Forrester e-retail analyst Sucharita Mulpuru. Online shoppers will spend an average of $338 in November and December, up 11.6% from $303 in 2009, Forrester projects.

Meanwhile, eMarketer predicted 14% growth in November and December web sales compared with last year, and that the shift of consumer spending to the web would be particularly apparent on the day after Thanksgiving, a popular shopping day often called Black Friday.

“Savvy consumers, knowing that retailers are posting some of their Black Friday deals online, will shop the web on Black Friday to avoid crowded malls, find bargains, and locate unusual or popular items that were unavailable in stores, rather than rise early to face crowded stores,” says eMarketer e-commerce analyst Jeffrey Grau.

thad@verticalwebmedia.com

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