You`d Better Watch Out

By early spring, online retailers were still assessing what many point to as a defining moment in e-commerce—the enormously successful 1998 holiday shopping season that exceeded all expectations. (One example: barnesandnoble.com reported $17.9 million in online revenue for the five-week period ending Jan. 2, 1999—a 300% jump over the previous year.) Virtual merchants have been studying their approaches, from pumping up available merchandise to producing special holiday home pages. And, for the first time, they now have significant experience in understanding what makes the Internet shopper click.

“We learned at least 30 things, particularly understanding how a Web shopper shops,” says John Roman, vice president of direct marketing for New York-based Brooks Brothers. “We had a hell of a learning experience,” adds John Rindlaub, vice president of brand marketing of barnesandnoble.com, New York.

In short, online retailers learned what worked and what didn’t. “Anybody who says everything went perfectly is just blowing smoke,” says John Hough, a spokesman for Egghead.com. The early analysis boils down to a few simple points: It’s all about convenience, good prices, customer service and available merchandise.

Just as in the bricks-and-mortar world, the holiday shopping season is critical to virtual retailers—maybe even more so in these early days than to traditional stores. For some online merchants, the holiday period accounted for half or more of their annual revenue.

That’s why understanding what worked—and fixing what didn’t—is vital to improving performance for the 1999 season. Online retailers have targeted three keys: merchandise, customer service and marketing. “Now it’s about operational excellence and branding,” says Rindlaub.

How the Furby saved Christmas

One huge merchandising success story for holiday ’98 was CyberShop, Jersey City, N.J. Its buyers recognized early that Furby would be the season’s hottest toy, and exploited that advantage. “We were able to secure a large supply of Furbys and successfully made it known to disappointed bricks-and-mortar retail shoppers that Furby was just a mouse click away,” in the words of Chief Executive Officer Jeff Tauber.

CyberShop sold more than 20,000 of the chatty critters at $99.95 apiece, accounting for 60% of CyberShop’s total revenues for the fourth quarter. CyberShop’s fourth-quarter sales of $3.4 million marked a fourfold increase over the same period in 1997, and accounted for 70% of the company’s annual sales of $4.8 million

A major appeal to online shopping is convenience. It’s easier to order that Furby online than to drive to the mall. Thus anything that complicates that no-hassle experience is a concern for virtual retailers. Whether it be orders, deliveries or the vast number of e-mail responses (1,000 a day at garden.com), Internet stores want to simplify the process. Holiday ’98 helped merchants identify the hassle points.

Virtual simplicity

One retailer that intends to streamline ordering is Garden Escape Inc., Austin, Texas, which operates garden.com. “Online is so convenience-driven,” says CEO Cliff Sharples. “And with a low price point, additional sales become so convenient.”

But Sharples says online retailers make the ordering process cumbersome during checkout by requiring customers to fill out one order form for each purchase. In fact, industry research indicates that up to 50% of items put in the shopping cart feature of a Web site are never purchased. “Imagine going to a grocery store, going to the checkout line and then not buying half the items in your shopping cart,” says Rindlaub. Barnesandnoble.com renovated its site by simplifying the language and making it harder to browse other pages at checkout time, he says, and is planning to improve response times to customer inquiries, such as “Where’s my order?” Before the holidays, turnaround time on such a question was 24 hours. During the holiday shopping rush it extended sometimes to 72 hours.

Another consistent message from online retailers is that they want to ramp up available merchandise from their 1998 selections. Nordstrom’s Web site, for example, offered this past season only 30% of the items available in its catalogs—and their customers want more.

For Christmas, most online retailers increased their product items in anticipation of a big selling season. Garden.com grew its product line from 9,500 to 11,000 items, with 300 products unique to the holidays.

Stocking stuffers

But some found that more wasn’t enough. Take Bluefly.com in New York, which sells designer fashions at discount prices. CEO Kenneth Seiff says the company had a successful fourth quarter, with gross sales of more than $300,000 and a dramatic online traffic boost from 28,297 visitors in September to 664,230 in December. But while items sold well across the board at Bluefly, Seiff was caught short with too little merchandise on hundreds of products, including certain brands of handbags and neckties. “Merchandise is critical,” he says. “You have to get the right categories in the right quantities.” It’s especially critical with discounted merchandise, he says, because it’s difficult to replenish stock.

JCP Internet Commerce Solutions, a division of Plano, Texas-based JCPenney, had 4,000 products available online for holiday 1998; it wants to raise that to 20,000 by fall—equal to the JCPenney catalog selections. In 1998, “customers expected to find the whole assortment online,” says JCP Executive Vice President Richard E. Last. While bedding and window coordinates sell extremely well through the catalog, “It didn’t follow the same pattern online,” he notes. One problem: The JCP site lacked the technology for online shoppers to see the bedding and window coordinates at the same time. The company plans to resolve that issue.

Chipping at shipping

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There was some grumbling by customers about high shipping costs at Bluefly. Seiff wants to eliminate any chance customers will use shipping costs as an obstacle to online ordering: “We’ve decided to not make it a detriment to sales.”

Egghead.com ran a big risk by ramping up its site in late November —right in the middle of the holiday season. It marked the end of a dramatic change for the Vancouver, Wash., company, which closed all of its retail stores in February 1998 to go strictly virtual, and eventually morphed three Web sites into one. A key issue for Egghead.com was delivery. Unlike JCPenney’s or Brooks Brothers’ online divisions, a virtual retailer such as Egghead.com must rely on outside sources. “You depend on the vendor getting the merchandise to the shipper and the shipper getting it there in one piece,” says Hough. “We learned that relationships with vendors and delivery services are as important as the ones with customers.”

Internet retailers also learned that online holiday shoppers don’t differ that much from their conventional counterparts strolling the malls. It’s all about pleasing the customer, no matter how many cool graphics you throw at a Web site. John Roman at Brooks Brothers says, “We intentionally built the site to keep it ‘less is more,’ not clutter the site with anything that wouldn’t enhance the shopping experience.”

The mainstream media helped create the buzz about online shopping. It certainly didn’t hurt marketing efforts when national publications made it front-page news. The heavy press coverage, no doubt, helped tempt Internet users to click on a banner ad for, say, barnesandnoble.com.

Virtual retailers supplemented their sponsorship deals with major search engines or online providers by purchasing offline media, too.

Marketing online offline

Garden.com found radio to be effective. JCP fed off its synergy with its corporate siblings—marketing in JCPenney stores (and on shopping bags) and in the company’s catalogs. JCP also launched a special holiday home page on its site that featured 28 gift items that could also be found in the catalog, and then promoted the items in print and on television. CyberShop spread the word about its Furby supply with newspaper ads, TV commercials and radio promotions. For example, Barnesandnoble.com went wide with print, advertising in USA Today and The New York Times.

Garden.com believes its targeted e-mails to existing and new customers helped generate repeat business. “Valentine’s Day sales were up 800% over last year,” Sharples says, “and that’s because of our successful holiday.”

Meanwhile, the experts have checked in with their assessment of the holiday season. While there was much to celebrate as far as sales figures, there were a few lumps of coal in the stocking as well. A Jupiter Communications NFO Interactive survey pointed out that online shoppers’ satisfaction dropped during the holiday season from 88% last July to 78% in December. The top three problems cited by customers: merchandise availability, additional costs of shipping and handling, and slow site performance.

Making a list

Jupiter Senior Analyst Nicole Vanderbilt warns that unless online retailers address these key issues, the boom in virtual buying could slacken. “The combination of retailers that launched or relaunched their sites within weeks of the holiday season, coupled with significant unanticipated increase in traffic, led many sites to underperform,” Vanderbilt says. “If they do not shift their efforts to alleviate technology issues and improve customer service, they risk losing the customers they spent so much to acquire.

But there is a lot to build on going into the 1999 season. Holiday ’98 was online retailers’ coming-out bash, their chance to make a sterling first impression on a host of excited, yet skeptical, shoppers.

“Online shopping is a leap of faith,” says Sharples. And shoppers were leaping in unprecedented numbers in November and December. Everybody expected that the 1998 holiday season would exceed sales for the same period in 1997, the first time e-commerce registered significant revenue.

But computer users bought music, books and videos in such numbers that they blew away the experts’ predictions. While a hard figure is difficult to pin down, even a lower-end estimate ($3.14 billion, by Jupiter) still represents a near-threefold increase over the previous year. One report even calculated sales as high as $8 billion.

According to an InfoBeads study, the number of American adults who made holiday purchases via e-commerce tripled from 1997 to 1998 to about 8.2 million, with more than 32 million adults visiting online shopping sites. A Zona Research survey says that the average shopper bought $629 worth of merchandise online during the holiday season, up from $216 the previous year.

The season had legs, too. The number of unique visitors at shopping Web sites grew significantly from November to December, according to Media Metrix, which tracks audience measurement. But it’s difficult to calculate how individual retailers performed. Many companies with a catalog division don’t break out online sales numbers. Privately held companies will only say that holiday sales performed “beyond expectations.” Some of this uncertainty might be cleared up in 1999. The Commerce Department announced in February that, for the first time, it will start asking companies to break out online sales figures, instead of lumping them in with catalog sales.

Uncertainty is a key word in the world of online retailing these days, including figuring out how to keep customers clicking away during the holiday season. Nobody seems discouraged about the results from holiday ’98, however. “We will ramp up now,” says a spokesman for barnes- andnoble.com, “and keep ramping up heading into the season.”