The feature is currently being tested in several of Drizly’s markets. It is expected to launch early next year.
Many retailers are looking to web sales to salvage what could be a tough year for retail sales.
At The Talbots Inc., the web represents 10% of sales but accounted for 68% of sales growth in 2007.
At office supplies retailer Staples Inc., web sales accounted for 29% of all sales but 58% of Staples’ 2007 growth.
At Circuit City Stores Inc., December sales were down 10% and comparable store sales were down 12.2% while the company was expecting to report 40% growth in online sales for the year. It appears that all of 2007’s growth at Circuit City will come from its web site.
And at Gap Inc., 2007 sales were virtually unchanged from 2006, while online sales were up 24%.
These chains illustrate the new reality facing retailers: The Internet is the engine of growth, especially this year as it appears increasingly likely that the U.S. economy is in a recession. “The Internet today is one of the few opportunities for retailers to capture sales growth and market share,” says Robert Antall, CEO of Cleveland-based retail consultants Lake West Group. “A lot of my clients are looking to the web as an opportunity to salvage the year.”
More heavy lifting
Retailers thus will be forced to look long and hard at their Internet investments and how to make the Internet perform more heavy lifting this year-even if they are heavily invested in the Internet already. Gaiam Inc. is a good example of what retailers are doing. It cut back catalog circulation as the result of higher production and postal costs and focused on beefing up its web site with a new e-commerce platform from MarketLive Inc. last November, new site search from Endeca Technologies Inc. that will be live in a couple of months, customer reviews from BazaarVoice Inc. and product videos. “With this economy, it’s been tough across the board so we are pouring money into our online initiative this year,” says Jason Marshall, vice president of Gaiam Direct.
Gaiam is only one retailer recognizing that an Internet strategy will be more important this year than ever before. Women’s apparel retailer Talbots’ e-commerce sales rose by 21.2%, $40.5 million, in 2007 from 2006, to $231.2 million from $190.7 million, while total sales rose 2.7%, $60 million, to $2.29 billion from $2.23 billion. Meanwhile, same-store sales were down 5.5%.
Staples’ online sales were up 14.3%, $700 million, to $5.6 billion from $4.9 billion while total sales were up 6.6%, $1.21 billion, to $19.37 billion from $18.16 billion. Comparable store sales fell 3%.
If Circuit City is able to deliver full year sales comparable to the year before-and that’s an if, given that nine-month sales were down 4.5% compared to the year before-that will mean the only growth for the 1,400-store chain will come from the web. Circuit City is experiencing a “massive shift,” in CEO Philip Schoonover’s words, from the store to the web.
Gap’s 2007 sales were $15.8 billion, down a tad from $15.9 billion the year before. Online sales, though, reached $903 million from $730 million the year before.
New online competition
A number of reports from companies that measure Internet performance confirm that the Internet is growing in importance to consumers:
l The share of Internet traffic to retail sites this year through the first week in March grew each week from 16% to as high as 24% compared to the same weeks a year earlier, reports Internet traffic measurement company Hitwise. By comparison, share to retail sites in each of three previous years was essentially the same as it had been in each prior year. “Each year we see a slowdown in share to retail sites following the holidays; this year we are not seeing that,” says Heather Dougherty, director of research. “That’s a good sign for online retailers.”
l In a survey of 1,642 online shoppers at the end of February, comparison shopping site Shopzilla found that while the economy is making shoppers curb their activity, with 58% of consumers saying they are shopping less often, 55% are looking for more deals online than they were a year ago.
l Nielsen Online reports that unique visitors to the mass merchandise category of online retailers grew from 84.31 million in February 2007 to 89.26 million in February this year.
“Consumers continue to have the attitude that the Internet is the place to go for better prices and a greater selection” Dougherty says. “That will only grow when people are tightening their belts.”
The growing importance of the Internet means that every retailer who relies on the Internet for sales will face more competition online as the year progresses. “Over the last couple of months, we’ve seen more bricks-and-mortar jewelry stores open web sites,” says Neil Kugelman, CEO of online jeweler Goldspeed.com. “They’re bidding on many of the same keywords that we bid on at search engines and that has driven up our costs.”
The result, he says, is that Goldspeed’s management is spending more time refining its marketing strategy. Among the approaches Goldspeed can no longer take is to automatically outbid any retailer on important keywords. The reason: Bricks-and-mortar retailers new to online selling are looking for quick volume and so will bid up keyword prices to stay toward the top of search results-while failing to understand the nuances of search engine marketing. “Usually we see that kind of competition for keywords at Christmas, but we’ve seen some terms go up 20% since Christmas,” Kugelman says.
The competition for keywords is forcing Goldspeed into other kinds of advertising, including beefing up its affiliate network, looking again at geographically targeted radio and TV advertising, and stepping up its presence in airline magazines.
More precise targeting
The slowing economy will also force e-retailers to target their core markets more precisely. Online spending by households with higher incomes grew faster last year than spending by households with lower incomes, reports comScore Inc., which tracks consumer use of the Internet. Households with income over $100,000 spent 28% more online last year than the year before, while those with $50,000 to $100,000 spent 17% more and those under $50,000 spent 10% more. “That tells me there is an economic issue at work in online shopping,” says Gian Fulgoni, president of comScore.