December 31, 2007, 12:00 AM

Amid economic weakness, online holiday sales outpaced offline sales

Online holidays sales grew substantially in the fourth quarter, but not at the rates of prior years, as lower-income consumers in particular cut back on spending as the economy weakened. Still, retail web sites fared better than stores.

Online holiday sales grew substantially in the fourth quarter, but not at the rates of prior years, as lower-income consumers in particular cut back on spending as the economy weakened.

Sales from Nov. 1 to Dec. 16 totaled $23.48 billion, up 19% from the same period in 2006, according to web measurement firm comScore Inc. ComScore was projecting 20% growth for the season, predicting holiday sales would reach $29.5 billion, compared with $24.6 billion the year before. Online holiday sales grew by 26% in 2006 over the year before, continuing a string of years of 25%-plus growth.

That streak seemed in jeopardy in late December, in part because the steady growth of e-commerce means sales each year must grow by more dollars to attain the same percentage growth rate. But the gloomy economic news clearly took a toll as well, especially among the less affluent.

The biggest spenders

Growth in online spending was only 10% in households with annual incomes below $50,000, comScore reports. That contrasted with 17% growth in households earning between $50,000 and $100,000 and 28% growth among households bringing in more than $100,000 a year.

“Those with less disposable income are restraining their spending across retail channels, whereas there’s still pretty robust growth among upper-income households,” says Andrew Lipsman, senior analyst at comScore. “This is not reflective of the end of e-commerce growth by any means. If you have a strong economy next year, we might see ourselves back up to the mid-20s in terms of growth rates.”

Still, retail web sites were faring better than stores. In-store sales declined 0.4% for the week ending Dec. 15 compared with a year earlier, and traffic was down 8.9%, in part because of snowstorms in the Midwest and Northeast, according to ShopperTrack RCT Corp. ShopperTrak predicted overall sales for the holiday season would finish up 3.6% over the prior year.

Both in stores and online, retailers began offering discounts early, hoping to capture sales before the dire economic news led consumers to close their wallets.

On the Friday after Thanks­giving, the traditional kickoff for in-store holiday shopping, there were 4.8% more consumers in stores, but they spent 3.5% less on average than the year before, according to the National Retail Federation. A similar pattern emerged online the following Monday, as 38% more shoppers made purchases than the year before, but the average shopper spent 12% less, comScore reports. According to comScore, 6% of U.S. Internet users made purchases online that day, compared with 4% on the same day the year before.

Heavy on promotions

E-retailers sent out a record number of promotional e-mails to drive that increase in traffic. According to RetailEmail.Blogspot, which tracks the e-mail campaigns of the top 100 online merchants, 67% of them sent marketing e-mails on the Monday after Thanksgiving, versus 44% on the same day a year earlier.

In November, 45.5% of online shopping took place at work, versus 44.1% at home, according to comScore. In December, comScore found nearly 53% of online purchases were being made between 9 a.m. and 3 p.m. local time, further indication of heavy shopping from the office.

Retail web sites generally performed better under the crush of heavy traffic this season. Keynote Systems Inc., which monitors site performance, said 10 of 30 sites it tracks for its Holiday Retail Index suffered significant response time slowdowns on the Friday after Thanksgiving, but most did not affect consumers’ buying experience. The exception was Sears Holdings Corp.’s, which was down for several hours. On the following Monday, the Yahoo Merchant Solutions e-commerce platform known as Yahoo Store suffered an embarrassing outage that affected most of its 40,000 merchants for half a day.

But consumers generally were more satisfied this year than last in their online shopping experience, with an index compiled by ForeSee Results registering 77.6 on a 100-point scale for the week of Dec. 3-9, up 3.3% from a year earlier. “The combination of retailer readiness for the holiday rush and positive reaction to promotions has resulted in robust satisfaction, which should spell strong results for the holiday season and beyond,” says Larry Freed, president and CEO of ForeSee Results.

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