2/03/14

E-retail takeaways from the holiday season

The atypical Christmas just past provides e-retailers lessons for Christmas future.

Katie Evans , Managing Editor, International Research

At first glance, the 2013 holiday season looks merry and bright for 3-year-old discount e-retailer NoMoreRack.com. Record December sales of $75 million helped the retailer tally $349 million in sales for 2013 compared to $100 million in 2012. Mobile sales grew from 15% of total sales in 2012 to 30% in 2013.

But all was not jolly.

Heavy online shopping just before Christmas combined with bad weather delayed many of its deliveries. That combination produced big headaches for NoMoreRack.com—headaches it was still dealing with in mid-January, says Melina Ash, the retailer's chief merchandising officer.

Ash says 8,000 of the retailer's orders placed during the Christmas season did not arrive by Dec. 25. "Those customers purchasing products as Christmas gifts have been very disappointed," she says. The retailer refunded a quarter of those orders and it allowed the shoppers to keep the late-arriving items for the inconvenience, Ash says.

It wasn't just one carrier that could not handle the rush, Ash says. NoMoreRack uses UPS Inc. and FedEx Corp., and both carriers had trouble getting packages to shoppers' doorsteps on time, she says. To deal with exasperated shoppers inquiring about the status of their packages, NoMoreRack had to double its customer service staff and many employees had to put in overtime, Ash says. UPS did not respond to requests for comment. FedEx says it "did not experience the widespread service issues reported in the news media," and responded "quickly to isolated incidents."

Other research suggests that not all the blame lies with the carriers. A study by retail consulting firm Kurt Salmon analyzed more than 175 orders placed on the last day that retailers guaranteed delivery by Christmas. It found that 15% of orders did not reach their destination in time and that retailers were responsible for 56% of those delays, which accounted for 8% of overall shipments. Retailers' shortcomings were largely due to internal processing errors or their failure to upgrade the shipping options, the firm says.

Regardless of where the fault lies, the delivery snafus made for a frenzied finale to the shopping season, which was already hectic with many shoppers going online to buy last-minute gifts. In the final weekend before Christmas, from Dec. 20 to 22, e-retail orders surged 37% over the same weekend a year earlier, according to IBM Corp., which bases its estimates on 800 of its online retail clients' sales.

That's despite retailers getting an early start on promotions—and seeing the results from those efforts with big online sales around Thanksgiving. Merchants responded to a holiday calendar that was unusual in two respects: The first day of Hanukkah, which typically falls in December, fell on Thanksgiving, and Thanksgiving was on the latest date it could be, Nov. 28, which meant there were only 26 days between Thanksgiving and Christmas. A year earlier there were 32 days between the two holidays.

This year, Hanukkah will fall on Dec. 16. But the holiday season will be only two days longer than in 2013. That means online retailers can benefit from paying attention to the new e-retail developments that emerged from last shopping season. And there were several that were noteworthy. Here are a few of the surprising results:

Much of the topsy-turvy shopping season stemmed from the calendar, retailers say. Holiday forecasting was a big challenge for Fathead LLC, a web-only retailer and manufacturer of life-size wall decals of athletes and graphics. "Next year's holiday period will be more like this year's, though not quite as compressed, and we think that will provide a more reliable model for planning," says Michael Layne, director of Internet marketing.

That planning will no doubt take into account the problems with last-minute orders. "The big lesson this year is: Don't send out e-mails in the days before Christmas promising people their packages will arrive before Dec. 25," says Sucharita Mulpuru, Forrester Research Inc. vice president and principal analyst.

Seeking to squeeze all the orders possible out of the compressed season, many e-retailers did just that. Streetwear retailer Karmaloop.com, for example offered shoppers discounts like 40% off and free overnight shipping three days before Christmas for orders of $150 or more, and 30% off and free overnight shipping for smaller orders.

Amazon.com, meanwhile, enabled procrastinating members of its Amazon Prime two-day shipping program to shop Amazon for select items as late as Dec. 23, though they had to pay an extra $2.99 minimum fee per item to have the items delivered by Dec. 25.

Not all those last-minute orders arrived on time. A survey by customer service measurement firm StellaService Inc. of 25 of the largest North American e-retailers found eight of those e-retailers failed to get at least some orders placed by the order cutoff date under the tree on time.

Among the retailers that suffered from the delivery backlog was SimplyLobsters.com. The retailer only offers next-day delivery because it sells fresh and frozen lobsters and steaks that need to get to shoppers doorsteps before spoiling. Of the 700 packages consumers ordered for arrival on Christmas Eve, 20% didn't get there as scheduled, and in half of those cases the delicacies were ruined, says owner Donald Lee.

"What happened was everyone waited until the last minute, some big retailers offered big late promotions and that basically overloaded [the shippers]," Lee says.

Despite the late arrivals, the retailer's carrier, UPS, only agreed to cover a portion of the cost for re-shipping because it did not guarantee safe arrival of perishable goods, Lee says. UPS has said publicly that the volume of air packages in its system exceeded its capacity in the days leading up to Dec. 25 and some shipments were delayed. It said it delivered "nearly all the volume" of the late orders the day after Christmas. However, for lobsters, the day after Christmas often wasn't soon enough. Lee says he plans to beef up the insulation in his packaging, and has been approached by other carriers about possibly switching his service.

"Shippers ... didn't read the pulse at all," Marshal Cohen, chief industry analyst for the NPD Group Inc. wrote in a blog post. "The signs were there that there would be a late holiday surge and they failed to adjust." Special sales and enticing shipping discounts, including free shipping offers as late as two days before Christmas this year all drove sales online, he says. While shippers got what they initially wanted—more shipments from online retailers, and more express deliveries with two-day and next-day service—the flood of late shoppers and the increase in online sales tested their capacity, he says.

There certainly were plenty of free shipping offers. An Internet Retailer survey found that of the Top 1000 North American web retailers, 625 promoted some kind of free shipping offer on their home pages during the week ending Dec. 20, and 294 offered free shipping on all orders, regardless of the amount purchased.

The sales surge, however, was not restricted to late in the season. The season got off to a bang with stunning Thanksgiving weekend web sales. ComScore says computer-based online sales reached $3.558 billion over the four-day Thanksgiving holiday weekend, compared to $2.862 billion over the same days in 2012, for an increase of 24.3%. That was particularly impressive because store sales fell: total retail sales for Thanksgiving weekend 2013 declined 2.7% to $57.4 billion from $59 billion in 2012, the National Retail Federation reported.

The biggest online shopping day of the season was on Cyber Monday, when web sales from devices of all types hit $2.085 billion, comScore says (comScore does not have a comparable figure from 2012 because it began tracking m-commerce sales in 2013). At Fathead.com, Cyber Monday sales increased 67% year over year, while sales for Nov. 15 through the end of December increased 29%.

Mark Carson, president and co-founder of toy e-retailer Fat Brain Toys LLC, says the Monday after Thanksgiving has become such a significant day for his business that he now develops specific operational plans to handle the day and its aftermath.

"With the spike we saw coming with Cyber Monday, we staffed more heavily and worked later on the Saturday and Sunday preceding Cyber Monday to make sure that our shipping queues were virtually empty," Carson says. Between an increase in staff and hours worked, the retailer nearly doubled its distribution center man-hours on Cyber Monday 2013 compared to 2012, he says.

Some e-retailers primed the pump with promotions beginning well before Thanksgiving. CanvasPop, which produces and sells via its e-commerce site photos printed onto canvas, launched its holiday promotions earlier than usual, offering "10 days of deals" before Black Friday. The retailer says that promotion contributed to a record quarter.

Online prepaid photo scanning e-retailer ScanMyPhotos.com launched an Oct. 21 Cyber Monday event targeting Hanukkah buyers because the holiday falling on Thanksgiving meant the "traditional" Cyber Monday came too late for Hanukkah shoppers to take advantage of, says Mitch Goldstone, president and CEO of ScanMyPhotos.com.

As online retailers make their plans for the 2014 holidays, they can take comfort in one clear fact: shoppers are shifting more of their holiday spending to the web. U.S. consumers purchasing via computers spent at least $46.545 billion with online retailers this holiday season, up nearly 10.1% from $42.286 billion last year, comScore says. Adding in mobile sales, comScore estimates the online shopping increase is about 12% compared to last holiday season, despite the shorter shopping season. That compares to 2.7% growth for bricks-and-mortar retailers in November and December, according to ShopperTrak, which monitors traffic and sales at major malls and retail chains.

Bricks-and-mortar stores were hurt by foot traffic dropping 14.6% compared to the same two months last year, thanks, in part, to severe weather in much of the country during the first two weekends in December, ShopperTrak says. But ShopperTrak also noted the shift to online shopping, saying "foot traffic will continue to slow due to changing consumer patterns—with more shoppers purchasing online or researching products online before heading to stores."

Shoppers are heading online in part because they think they can get better deals on the web. In a study of 1,100 consumers by NPD Group, 31% of respondents said online sites offered better deals, compared to 18% who said stores had better deals (26% of respondents stated both had the same deals). That means 57% of shoppers found deals online to be more attractive or as good as what they could find in bricks-and-mortar stores.

Many of those online deals were purchased via smartphones and tablets, according to retailers. At web-only consignment e-retailer The RealReal Inc., tablet sales grew 200% in December 2013 compared to the same month a year earlier. Average tablet order value also grew 20% year over year and the conversion rate soared 173%.

At Fathead.com, from Thanksgiving Day through Dec. 22, smartphone sales accounted for 13.1% of total sales, up from 6.4% for the same period in 2012. And tablet sales accounted for 14.8% of revenue compared with 11% a year earlier.

Those strong mobile numbers aren't an anomaly. Mobile commerce sales accounted for nearly 21% of total Black Friday digital sales in the United States, $314 million out of $1.512 billion, and nearly 17% of Cyber Monday sales, $350 million out of $2.085 billion, comScore says.

And it may represent a shift in the way consumers shop. "Even on Black Friday, when you'd expect most people to be [shopping] in stores, we saw a huge increase in mobile shopping; more so than on Cyber Monday," says Johnna Marcus, director of mobile and digital store marketing at make-up retailer Sephora USA Inc. "Given the shorter holiday season, mobile is a convenient option, and we see that [shoppers] are becoming more comfortable—going beyond browsing and actually making purchases on mobile devices."

Retailers can learn much from the past holiday shopping season. Sometimes pushing sales until the very last minute doesn't work out so well. Shoppers will procrastinate if they can. Online gift buying is only growing and taking market share from stores. And mobile commerce, now accounting for one-fifth of web sales, can't be an afterthought. The 2013 Christmas season, despite its bumps and bruises, provided two gifts to e-retailers: cold, hard cash and knowledge. In 2014, smart web merchants will use the second to get more of the first.

Katie@verticalwebmedia.com

@KatieIR

Topics:

2014 holiday sales, Amazon.com, eBay, Fat Brain Toys, fathead.com, February 2014 magazine, mobile holiday sales, NoMoreRack.com, online holiday sales, Sephora USA Inc.

NEWS CATEGORIES Back to Top...