A Very Wary Christmas
With one eye on an uncertain economy and another on the drive for profits, e-retailers prepare for Q4 and Christmas.
By Mary Wagner
Last Christmas, luxury goods e-retailer Ashford.com offered free shipping—free next day shipping—on holiday gift orders of more than $100. After an industrywide Christmas shipping debacle the previous year in which too many e-retailers failed to connect shoppers with their orders, Ashford was determined to position itself as a retailer who would do whatever it took to deliver orders by Christmas. And it did—it closed the season with a 99.5% record of successful on-time deliveries.
But that was last year and this is this year and Ashford has pulled in the reins for Christmas 2001. Free shipping now applies on orders of $1,000 or more; everybody else pays $7.95. And that’s not the only difference between last Christmas and the one ahead. While a number of different holiday promotions are “definitely possibilities,” according to Kim Richard, vice president of marketing and corporate strategy, Ashford hasn’t settled on any of them. It is instead looking very carefully at the marketplace and its need to produce profits before committing itself to any promotional offers. “The nice thing about being an e-retailer is the flexibility it gives. We can quickly change the offering to include free shipping or free gift wrap or a number of things—but we’ll assess the need for something like that as we go, and lock it in at the right time,” Richard says.
True, it’s only September—August when Internet Retailer spoke with Ashford. But the luxury goods retailer’s cautious attitude about holiday promotions illustrates what e-retail analysts preparing online shopping forecasts for Q4 already see. “If the downturn doesn’t pick up or eradicate itself until the end of the year, it’s going to be a tough Christmas for retail, period,” says Carrie Johnson, an analyst with Cambridge, Mass.-based Forrester Research Inc. “We can’t predict what the economy will do. But we do know from historical patterns that if we see the beginning of a downturn now—and our most recent index data did show a drop in online retail spending—spending in those product categories will not pick up for a couple of quarters.”
Johnson is not the only analyst hinting at a retail season more suited to Ebenezer Scrooge than Santa—at least, in comparison to the economic boom that the U.S. Commerce Department reports drove Internet sales up 70% last year from Holiday 1999. “Many e-retailers are going into the holiday with inventory levels too high because they anticipated spending levels to be much higher than they have been. We may see a lot of sales, smaller orders. It’s not going to be pretty,” predicts retail consultant Keven Wilder of Chicago-based Wilder and Associates.
That’s not what e-retailers want to hear. The fourth quarter is when retailers traditionally pull in the biggest chunk of the year’s sales. Online sales used to be insulated from the rest of retail’s ebbs and flows, with new users piling onto the Internet throughout the year to give online shopping a try. But the Internet adoption rate has slowed. Increasingly, online sales mirror the seasonality of the offline world, and the impending possibility that the height of the holiday shopping season might coincide with the trough of an economic downturn has more than a few worried.
Washed with the tides
But that doesn’t mean they’re burying their heads in the sand—far from it. While hoping and planning for the best, they’re also preparing for a range of other scenarios. In addition to exercising more caution about promotions that get shoppers to the site by giving away the store, they’re building marketing and merchandising plans that they can adjust to market conditions in real time. They’re focusing on proven products and relationships while dumping those that are less so. And instead of sacrificing on a lot of costly promotions, they’re spending on web site enhancements that shorten the path to sales by making it easier for holiday shoppers to get from search to checkout.
“Whether retailers make this as highly promotional a Christmas as in the past, consumers are going to be looking for value this year,” says Mary Brett Whitfield, director of the E-Retail Intelligence System at PricewaterhouseCoopers. Much of what retailers do online this holiday will be a response to that, whether it’s balancing their assortment to the value end of the scale and expanding lower-priced items or taking the opposite approach and narrowing the assortment to proven and profitable winners.
“The other issue I expect e-retailers to look at this year is customer satisfaction,” adds Whitfield. “Not just with the purchase, but how easy it is to find and buy what they’re looking for. So not only will they be looking for value, but also an improved shopping experience online. To provide that, retailers have been introducing new functionality like top 10 best seller lists and buy-this-outfit features throughout the year, but it will really pay off during the holiday season.”
Ready for Q4
That’s exactly what Federated Direct is hoping for. Federated Direct, the direct-to-consumer division of Federated Department Stores Inc., in July relaunched Macys.com and Bloomingdales.com. The sites are loaded with new shopping tools like the Macys.com’s My Closet feature, a wardrobing tool that makes it easier to put together an outfit online by letting shoppers drag images of products they’ve selected for their closet’s “rack” into a virtual fitting room. As customers combine items of clothing with accessories, the closet keeps a running total of all products in the fitting room, tabulating the cost of selected items. Customers can save “views” of outfits to return to them later—or add items of clothing or the entire outfit to their shopping bag in one click. Macys.com also has worked with Mercado Software Inc. to power up its search capacity. And it has added eight new online designer boutiques with labels ranging from Calvin Klein to Kenneth Cole.
“We’ve been working on the sites for a year. We’re ready for Q4,” declares Dawn Robertson, president of Federated Direct. “What we’ve seen emerging is that the customer wants shopping online to be simple and fast. While they wanted that last year, too, it’s become a real focus this year.”
In addition to site enhancements that make it easier to search and buy, Federated Direct’s strategy for the holidays is directed at merchandising gifts, brands and selected categories of business, with specific merchandising goals and plans for each. Robertson wouldn’t give away details — holiday offerings won’t show up on the sites for weeks—but the strategy is built on a tiered approach that ties promotions to customer response as the season progresses. In other words, don’t look for many big holiday promotions that offer big discounts on popular items that already sell themselves.
Discounts are a traffic-building technique that web merchants will be using far less frequently this season. “E-retailers won’t be able to offer the discounts and promotions of the past holiday season that drove consumers online,” Johnson says. “So it won’t be as promotional a Christmas this year.”
Flexible promotions
That’s what retailers say now. But part of the beauty of the web is that it allows retailers to change their marketing strategies immediately in response to what’s selling or not selling. “With all the mechanisms like e-mail that retailers have available, I wouldn’t be surprised to see them designing flexible marketing programs this year,” Whitfield says. “If they don’t reach whatever metric they’re looking for by a certain time, they’ll go to Plan B, which will include things like promotions and e-mail campaigns. They will try to get as much full-margin, full retail price sales as they can, but everyone is also planning for how they can be sure to sell through as much inventory as they can.”
That pretty much sums up Federated Direct’s approach this year. “As the products sell or don’t sell, we’ll promote them,” Robertson says. “If something’s really selling and the customers are responding, it would remain the same value price it is every day. If not, we take a different stand. We don’t plan to merchandise below certain price points.”
That’s in part because Federated Direct already has made a substantial investment in revving up its web sites—Robertson won’t say how much—which it must recoup soon if it’s to reach its goal to break even in 2003. For the same reason, Federated Direct isn’t expanding its assortment with lower-priced items this Christmas, choosing instead to expand SKUs toward the other end of the scale in pursuit of bigger margins. Macy’s.com, for example, will offer 75,000 SKUs this Christmas, up from 60,000, while Bloomingdales.com will expand similarly. Robertson also says Federated Direct limits free shipping to four times a year, only one of which will fall during the holiday season.
“We’ve put together strong merchandising of gifts and we didn’t have that last year,” Robertson says. “We didn’t have the boutiques and the collections last year that we have now. We’ve made some enhancements, and there are more coming down the pike. We’re taking the offense, not the defense.”
Ashford is too; it just looks different. While you’d have to live under a rock not to know Macy’s (who hasn’t seen those Thanksgiving parade balloons on TV?), companies like Ashford are still trying to build a presence. But as it prepares for what it hopes will be its biggest sales quarter of the year while keeping an eye on costs, Ashford has severed some 20 affiliate relationships that weren’t producing sales and shifted most of its remaining advertising relationships to a pay-for-performance structure. “There were many editorial sites that didn’t generate sales for us,” says Richard. “It was a good branding opportunity, but there are no dollars for branding these days. Sites have to generate measurable sales.”
Ashford also is working with search optimization providers on a revenue-share basis. It’s narrowing its assortment to decrease the number of lower-priced items that aren’t profitable. The 30% reduction will leave about 12,000 SKUs online. It’s also eliminating about one third of the 300 brands it carries. “We can reduce the assortment to SKUs that perform and still have a broad offering,” says Richard. “Like offline companies that focus on sure bets, we’ll focus on sure bets as well.”
Other measures
This Christmas presents e-retailers with big challenges—a shaky economy, the need to rein in costs, and the rising expectations of web-savvy consumers. Web merchants with even a few years of experience are making the moves they believe will position them to seize what’s also the year’s biggest opportunity to bring in revenue. No one knows for sure how it will shake out until the glitter of the holidays settles.
But though e-retailers are focused on making their numbers, the holiday’s gains also have to be measured in terms of learning—even when they may look like losses. “Few major online retailers don’t have a strong multi-channel presence or at least an alliance,” notes Whitfield. “So is the only measure of success the sales from the site, or is it the ongoing relationship they build with customers and the fact they can now communicate with them by e-mail? I think this Christmas could be the year many of them start really thinking about the role of the web and the best way to measure an online store’s success.” l
mary@verticalwebmedia.com
A delivery option just right
for procrastinators
Online retailers largely redeemed themselves last year
from the delivery debacles of 1999, in part by declaring cut-off dates after
which they could no longer promise on-time deliveries for the holidays. But
cutting off shipments as the holiday approaches presents merchants with a dilemma:
it also effectively cuts off sales. To extend the shopping season even further—and
thereby bump up sales an extra notch or two—Davidson, N.C.-based technology
developer Upresent.com has developed a web application that guarantees Christmas
delivery of orders placed on Christmas eve—make that Christmas day.
Upresent’s online gift delivery as deployed by e-retail sites lets shoppers click on a “free online gift delivery” icon, usually listed with other service options such as gift wrapping. Senders who click on the icon follow prompts that let them select from several pre-loaded, animated, graphic e-mails to generate one that lets the recipient know immediately—or later, if the sender chooses—that a gift is on its way from the sender. Attached to the e-mail is an image of an unwrapped gift, or a photo of the gift selected. Clicking on the icon actually delivers the shopper temporarily to Upresent’s server to compete the process. When arrangements for online delivery are completed, the shopper is returned to the retailer’s site, but because Upresent matches its graphic interface with that of the participating retailer, shoppers don’t know they’ve ever left the retailer’s site. No credit card information or personal data is brought over from the retailer’s site onto Upresent’s server.
Online gift delivery is more than customer service, according to Upresent CEO and founder David MacMahan: it’s a customer acquisition tool as well. While MacMahan estimates online gift delivery can reduce shopping cart abandonment by 2% to 7% by quelling fears about timely delivery, the online gift delivery process also offers gift recipients the chance to opt in to receive news and marketing information from the e-retailer’s site. At Booksamillion.com, an online bookstore that piloted the technology during Christmas 2000, the uptake on opt-in was 14%. Lowes.com, Harry and David, BassProShops.com, and 1-800Flowers.com have committed to adding the service in time for the holidays or already offer it, MacMahan says. Retailers pay a transaction fee of 35 to 65 cents per delivery and a monthly maintenance charge of $250.
“You know how they say it’s the thought that counts?” says MacMahan. “We make sure the thought gets there online.”
