In its second-largest acquisition, Amazon buys the company for $970 million.
E-retailers have long wish lists for the upcoming holiday season, with solving the free shipping puzzle near the top.
Consumers moved more of their holiday gift shopping to the web last year, but not all e-retailers shared equally from that shift. The 25 largest online retailers accounted for 68.4% of e-retail purchases in the fourth quarter, up 5.6 percentage points from Q4 2009, according to comScore Inc., which measures online consumer activity.
What's more, several big retail chains, seeing the shift from bricks-and-mortar stores to web stores, came out of the holiday season committed to beefing up their e-commerce efforts. J.C. Penney Co. Inc. announced in January that it will close some stores and cut back on catalogs to free up capital for its e-retail arm; Macy's Inc. disclosed plans to hire 725 new employees for Macys.com; and Nordstrom Inc. announced that it will pay $180 million to buy HauteLook.com, an online daily-deal fashion retailer.
"Bricks-and-mortar retailers are finally getting it," says Wendy Liebmann, CEO of WSL Strategic Retail, a retail consultancy and research firm. "E-retail is just another word for retailing now."
Those big chains are responding to the steady shift of consumer spending to the web, which showed no sign of slowing during the 2010 holiday season. For November and December 2010, online sales were up 15.4% compared to the previous year, according to MasterCard Advisors' SpendingPulse, while offline retailers saw average same-store sales grow 5.6% in November and 3.2% in December, according to Kantar Retail. That shift showed up in the earnings reports of individual chains, such as Nordstrom, which reported 27.5% higher e-commerce sales in November and December while sales were only up 5.7% at the retailer's full-line stores, excluding Nordstrom Rack.
The growing attention to the web by major retail chains will make the upcoming holiday season even more competitive online, says Patti Freeman Evans, vice president and research director at research and consulting firm Forrester Research Inc. "Bricks-and-mortar retailers are getting behind the growth engines for their companies, and that's online," she says. "For smaller guys it'll continue to be a challenge to gain visibility, especially if it becomes a battle over price."
Mid-tier and smaller e-retailers have seen the same signs, and are starting to draw on their 2010 holiday season experiences to prepare for this year's rush. High on their to-do lists is figuring out a way to offer consumers the free shipping they crave, and still be price-competitive. Others are hoping to gain visibility with private sales for loyal customers, social media marketing and mobile commerce initiatives.
Among the trends that emerged out of the 2010 holiday season were the growing prevalence of free shipping offers and retailers front-loading their promotions to entice shoppers early in the season.
More than half of the orders consumers placed online during the 2010 holiday season came with free shipping, according to comScore. And there's no sign of that easing up. Amazon.com Inc. has signed up 6 million shoppers to its Amazon Prime offer of free shipping for a year for a $79 fee, according to Lazard Capital Markets, up from 5 million a year ago. And more than 60 retailers signed up for a similar $79-a-year program called ShopRunner operated by e-commerce technology and services provider GSI Commerce Inc. ShopRunner retailers include such major chains as The Sports Authority Inc., PetSmart Inc. and General Nutrition Centers Inc., along with big web-only retailers like Newegg Inc. and Drugstore.com Inc.
Offering free shipping would be more palatable if e-retailers could raise prices, but that won't be easy, at least not early in the upcoming holiday season.
Web retailers rolled out heavy promotions last November, when they weren't sure how the holiday season would turn out, says Ken Burke, founder and chairman of MarketLive Inc., a provider of e-commerce software and services. "They discounted more heavily in the beginning, and when Thanksgiving weekend sales went crazy they realized they could back off a bit," Burke says.
That shows up in statistics from MarketLive, which reveal the number of units sold by its retailer clients increased 33% in November from the same month a year earlier, while average order value increased only 1.1%, indicating e-retailers were offering deep discounts. In December, retailers eased up on the promotions, and unit sales were up 11.5% while average order value rose 4.7%.
Another sign that pricing firmed post-Thanksgiving comes from MyBuys, a provider of personalization and product recommendations technology for e-retailers, which reports that its e-retailer clients collected 15.6% more revenue from products sold without a discount during the 2010 holiday season from the recession-impacted 2009 season, while revenue from discounted products fell 10%.
For Drs. Foster and Smith, an online retailer of pet supplies, the conclusion to draw from those trends is to hold the line on prices and offer free shipping on more orders. Just before Thanksgiving 2010 the e-retailer went to a new policy of free shipping on any order over $49. Previously, the e-retailer charged a $5.99 flat rate for shipping on all items, except prescriptions and health care items, which shipped free.
Consumers told Drs. Foster and Smith that the shipping policy kept them from ordering more. For instance, if a customer ordered a prescription the item would ship free, but adding a general merchandise item triggered a $5.99 shipping fee.
As for raising prices to cover the shipping offer, the intense online competition among pet supplies retailers made that unrealistic, says Gordon Magee, Internet marketing and media manager at the pet goods e-retailer. "It had to give genuine benefit to the customer. We hoped and predicted that if it did that, it would play out," Magee says.
Magee says the 2010 holiday season proved to be the e-retailer's best ever and that average order value increased, although he declined to provide details. January 2011 sales also set a record, he says. That success led the e-retailer to introduce in March the same shipping strategy on its aquatic site, where products typically are heavier and cost more to ship. "Customers expect free shipping," Magee says. "Consumers don't have to figure it out. It removes a barrier to selling."