October 18, 2001, 12:00 AM

Online retail sales will grow 7% in Q4, Yankee predicts

Q4 winners will be flexible in pricing, have high customer loyalty, and leverage marketing efforts across channels, while losers face “substantial industry consolidation” in Q1, Yankee Group says.

Joining a groundswell of industry research firms now releasing online shopping projections for the holidays, the Boston-based Yankee Group this week weighs in with the prediction that growth in online retail will slow considerably through the fourth quarter. Yankee’s fourth-quarter forecast of $9.5 billion in online retail sales is a 7% increase in sales from the fourth quarter of last year.

Yankee projects total online retail sales for 2001 at $32.4 billion, a 19% increase from 2000’s $27.3 billion in sales. Internet sales will account for about 1.03% of total retail sales for the year, Yankee adds, a slight increase from the .89% of retail sales that were conducted online last year.

Yankee analyst Paul Ritter singles out categories of online retailers as well as individual companies that are most likely to perform ahead of the market in the fourth quarter. Retailers with substantial gross margins that will allow them more flexibility to reduce prices both online and offline to boost sales are one such group: Ritter cites The Sharper Image and Lands` End as examples. Also better-positioned for Q4 are retailers that already enjoy a high degree of customer loyalty due to promotional web initiatives throughout the year, such as Amazon.com, Ritter says. Finally, multi-channel retailers with well-integrated online and offline operations, such as JC Penney, should be able to gain an edge by leveraging promotional efforts and strategies across channels, Ritter says.

“While the most drastic effects of reduced online spending are likely to be short-term -- six to nine months -- the last three months of the year are absolutely critical for retail, with many firms generating 50% or more of annual revenues during the fourth quarter,” Ritter says. The net effect among retailers who don’t execute well in the fourth quarter, he warns, could be “substantial industry consolidation in the first quarter of 2002.”

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