Fear and the economy

Further, an informal poll three weeks after the attack of the members of the Electronic Retailing Association, which represents online retailers as well as direct TV and direct radio sellers, showed that shopping levels were at about 80% of where they were before the attack. “The products that are doing well are home-related products,” Myers says. “Cooking, housewares, home and garden, beauty—small, discretionary expenditures that represent the vast majority of products sold in electronic shopping.”

That growth will only continue, observers says, spurred by a number of factors. Record numbers of consumers have turned to the Internet for information since Sept. 11. Gift-givers who were planning to travel over the holidays and deliver their gifts in person are now not as likely to travel. Even those who do travel will not want to deal with the hassle of having their gifts subject to security inspections. Some are afraid to go to crowded locales and the state of the economy may even cause some to turn to the Internet as a way to keep a rein on their spending and to comparison shop easily.

The reliance that Americans placed on the Internet as a source of news bodes well for shopping, says Badillo of Retail Forward. “What will make retail e-commerce take off is when consumers make the Internet part of their everyday lives,” he says. “With the events of Sept. 11, people have turned to the web for information. People are going to the computer more, they’re less likely to travel, so they’re looking for a different diversion. It may allow them more time to spend online.”

Certainly the expected decline in travel will be one of the biggest factors in boosting online shopping. The Gallup Organization reports 43% of Americans are less willing to fly than they were before Sept. 11. “People who would have delivered gifts personally won’t be traveling to see Aunt Sarah in Minnesota this year,” says Jay Foran, vice president of Cleveland-based retail consultants LakeWest Group.

Furthermore, with heightened security at airports, airlines encouraging travelers not to carry on baggage, and security guards scrutinizing carry-on luggage more closely than ever, even those who do travel are likely to send their packages on ahead, via UPS, Post Office or Federal Express. “Who’s going to want to drag all that stuff through security?” Foran says.

Internet retailing also might get a slight boost from fearful people who don’t want to go into crowds. Gallup reports that 30% of Americans say they are less willing to attend events with large crowds. “People are staying home to do more,” says BizRate’s Davis. “We talk to a lot of retailers both offline and online and the offline retailers across the board are saying traffic is down.”

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In fact, Chicago-based RCT Systems Inc., a retail traffic measurement service, reports that retail traffic was down 67% on Sept. 11 from a year earlier and off 6.8% for all of September. Even though shopping recovered after Sept. 11, traffic was still down 5.6% for Sept. 12 to Oct. 6 vs. a year earlier.

But in addition to the aftereffects of the attacks, the economy could play a role in promoting online shopping. “When consumers cut back, it’s easier for them to surgically target their purchases online than to go into a retail store with little Johnny tugging on their belt and saying I want this and I want that,” Davis says. “Impulse purchases are bigger offline than they are online.”

But even without the terrorist attacks and the state of the economy, online shopping would have grown this quarter, many say. “The technology has gotten better, the diversity of products has mushroomed and the reliability of delivery has improved,” says the ERA’s Myers. “As consumers’ satisfaction in this medium goes up, their propensity to shop on the web or respond to TV increases. This quarter will see further movement in market share among electronic retailers.”

Of course, consumer attitudes change quickly, especially these days. And that is the real challenge for retailers, says Foran of the LakeWest Group. “Retailers ought to be looking at all the outcomes that could occur,” he says, “rather than trying to predict which scenario will happen.”

Possible outcomes could include a sudden boost in consumer confidence if a significant victory in the war against terror takes place. Similarly, consumer confidence could deteriorate further if there are more terrorist attacks or if the U.S. suffers a major setback. “They’ve got to be constantly tinkering with their strategy so they’re ready, no matter what happens,” he says. “There is very little runway left between now and the holidays and they’ve got to be even more nimble than they were before if they are to respond appropriately.”

Selling on the web makes that nimbleness much more possible than before, allowing retailers to do instant promotions or change product presentations to take advantage of changes in buying patterns.

Among the steps that retailers should take, Foran says, are to keep close tabs on what customers are buying so they can know as soon as possible where potential shortages may occur, make sure that promotions and inventories are in sync and make sure there is enough assortment in the popular items.

Finally, he notes, this year’s holiday shopping may end up being a last-minute spree. “Because the news of the day is so impactful, the holidays seem so far off to many consumers,” he says. “It’s possible that this will lead to last-minute selling.”

The downs and ups of online retailing this fall

If online sales are to grow significantly, as many predict, during the fourth quarter, they will have some recovery to do. ComScore Networks Inc., a web-tracking service, reports the slow uphill climb from the depths of post-Sept. 11 online buying. ComScore reported that essential product categories such as apparel and health & beauty suffered a drop of 27% during the week of the attacks, but their sales quickly rebounded to levels even higher than those seen before Sept. 11. By contrast, while sales of discretionary categories such as consumer electronics, books and event tickets declined a comparable 24% during the week of the attacks, these categories returned to normal sales levels only in the middle of October. “But it will be important to continue to monitor the extent to which consumers begin to increase their spending as we approach the seasonally high months of November and December,” says Daniel E. Hess, vice president of comScore. Here’s what comScore reports. The percentage changes in all cases are from pre-attack levels: