What holiday 2012 can teach e-retailers as they prepare for 2013.
Katie Evans , Managing Editor, International Research
Mike Schwarz, founder and CEO of online retailer RibbedTee Designs LLC, didn't wait for Thanksgiving week to launch a big holiday sale last November. Instead, he promoted a 96-hour sale starting Nov. 7, offering 20% to 40% off all items on his site.
"This was a winning strategy for us because it kept us from having to compete for e-mail inbox space with other holiday offers," Schwarz says. RibbedTee's sales for November and December increased 22% compared to 2011, he says.
Schwarz plans to repeat the limited-time sale early in November when the 2013 holiday season rolls around. And other retailers, too, likely will be looking to get an early start on the holiday season, given that this year there will be only 26 days between the day after Thanksgiving, routinely referred to as Black Friday, and Christmas Eve, 19% less than the 32 days in 2012.
That means retailers will have to find ways to increase their daily sales by 23% every shopping day of the 2013 season to match their 2012 sales, says Fiona Dias, chief strategy officer for ShopRunner, a two-day shipping and loyalty program that retailers can offer customers. "That is not a trivial increase in sales," Dias says.
If they're going to increase sales in a shorter season, online retailers will have to closely evaluate the strategies that helped generate a 13.7% year-over-year increase in e-retail sales in November and December 2012 to $42.3 billion, according to web measurement firm comScore Inc. A review of the 2012 season reveals a blockbuster start around the Thanksgiving weekend, and some retailers pushing back shipping deadlines closer to Christmas to capture last-minute purchases. Mobile shopping—both consumers purchasing and researching through smartphones and tablets—was strong throughout.
But there was also a lull in the middle of the 2012 holiday season that likely will have online retailers casting about for ways to keep up the pace of sales in the shorter 2013 season.
Dreary store sales
As online retailers prep for a shorter holiday sales season, at least they can look ahead to 2013 knowing that the 13.7% increase in e-commerce sales in November and December 2012 represented a substantial gain in market share from store-based rivals.
Total retail sales, excluding automotive sales, increased 4.1% on a seasonally adjusted basis for November and December 2012 over the same months a year earlier, to $738.7 billion from $709.7 billion, according to estimates released in January by the U.S. Commerce Department. Taking out purchases at restaurants and bars, the National Retail Federation estimates holiday season sales increased 3.0%, including the web and stores, falling short of its prediction of 4.1%. The retailer trade association blamed consumers' uncertainty over the "fiscal cliff" policy haggling in Washington, D.C., for the shortfall.
Non-store retail sales—mainly sales by online retailers but also merchants that sell through catalogs and TV infomercials—increased 11.9% to $77.2 billion from $69.0 billion, the Commerce Department says. (The Commerce Department reports online retail sales in mid-February.) That made the season bleaker for stores. "I'd estimate that the growth in online sales is taking about one percentage point off store sales growth," says Frank Badillo, senior economist at Kantar Retail, which publishes data on retail traffic and spending.
The disparity in web-versus-store growth showed up in reports from some retail chains. Best Buy Co. Inc., for example, says the web grew 10% over the holidays while comparable-store sales, which include web sales, were flat year over year for the nine-week period ended Jan. 5. Web sales rose to $1.1 billion and comparable-store sales stayed even at $12.8 billion. That means without e-commerce, sales would have been down nearly 1% at stores open for at least one year.
December web sales for clothing retailer American Apparel Inc. meanwhile increased 59% year over year, while total comparable-store growth for the chain's bricks-and-mortar stores only rose 9%. While the apparel retailer, which operates 251 stores, did not provide dollar sales figures for December, based on previously released American Apparel financial data Internet Retailer estimates the web accounted for 48% of same-store sales growth in December, even though it accounted for only about 17% of total retail sales.
The e-commerce advantage showed up in results for Thanksgiving weekend. Many retail chains—including Wal-Mart Stores Inc., Target Corp. and Toys 'R' Us Inc.—decided not to wait until Black Friday to kick off their big promotions, instead opening stores on Thanksgiving night. At the same time, several of them, including Wal-Mart and Macy's, offered shoppers their Black Friday deals online early on Thanksgiving, undercutting their store sales.
The strategy seemed to move more sales to the web than to physical stores. Taking Thanksgiving and the next day together, store sales actually declined 0.18% compared with the same two days in 2011, says payment processor Chase Paymentech, basing the estimate on its retailer clients' sales. While total transactions increased 0.15% in stores, the average ticket declined 0.33%, Chase reports, likely a sign of bargain hunting.
But it was a different story online. For Thanksgiving and Black Friday online retail sales increased 29.3% to $1.675 billion from $1.295 billion in 2011, according to comScore, which makes its estimates by tracking the online activity of a panel of some 1 million U.S. consumers who agree to be tracked.
Online sales for 2012 hit their peak on the Monday after Thanksgiving, or Cyber Monday as it's often called because of the welter of web retailers' promotions. E-retailers pulled in $1.465 billion in sales, making it the biggest online sales day in history, comScore says, and a 17.1% increase from the Monday after Thanksgiving in 2011. Overall, the five-day period from the holiday through the following Monday produced a 21.0% year-over-year increase in online sales, comScore says.
The strong early promotions had shoppers polishing off their shopping earlier in the season than in previous years, but that had detrimental effects on December sales. A poll of 8,333 U.S. consumers conducted Dec. 4-10 by the National Retail Federation found consumers had finished 56.5% of their holiday shopping, up from 46.5% at the same time in 2011. 11.3% of consumers in the survey said they were done with their holiday shopping.
"Sales for a lot of retailers were soft in December 2012 and that's because companies pushed so many promos in November," says Sucharita Mulpuru, vice president and principal analyst at Forrester Research Inc. "All they did was push up transactions earlier in the season that were going to happen anyway, and they cut into their margins as well."
Indeed, e-commerce growth rates growth fell to 9% the week of Dec. 3, according to comScore, well off the Thanksgiving week growth of 21.0%.
Among the e-retailers that saw sales fall off before the end of the holiday season was Thomas Nakios, owner of apparel e-retailer Lilla P LLC. Nakios says sales started off very strong. LillaP.com's Black Friday traffic more than doubled, helping to drive a 119% increase in revenue compared to the same day in 2011. Traffic on the Monday after Thanksgiving rose 215% and sales increased 136% year over year.
That influx in traffic and sales at least partly stemmed from deal-minded consumers responding to a 25% site-wide discount plus free shipping promotion that Lilla P ran Black Friday through Cyber Monday—an increase from 2011's discount of 20% with free shipping over the same time period.
Sales from mid-December through the end of the month, however, slowed after the web retailer ended the site-wide sale, and from Dec. 15 through Dec. 31 fell nearly 30% year over year, Nakios says. It may be that more consumers were done with their shopping by that time, but Nakios believes economic fears over the deadlock between lawmakers in Washington, D.C., unnerved consumers and the lack of a discount prompted the drop.
Peter Cobb, co-founder and executive vice president of bag retailer eBags.com also says sales fell off in early December after the strong spurt around Thanksgiving—which he calls Cyber Week—and were a bit softer than he expected, though he did not provide details. "People definitely shopped during Cyber Week but it tailed off after that and then picked up the last week as the procrastinators kicked into gear," Cobb says.
Online sales did pick back up again, with procrastinating shoppers spending $3.686 billion online in the five days from Dec. 17-21, compared with $2.412 billion during the same period in 2011—although part of the increase stemmed from the Free Shipping Day promotion that more than 1,000 e-retailers participated in moving to Monday, Dec. 17, from the previous week in 2011. Still, the heaviest online shopping days of the season all occurred before Dec. 15, comScore reports.
While early deals may have led more shoppers than usual to wrap up their shopping early, e-retailers also developed and promoted shipping strategies meant to convince late-season shoppers that they could still count on e-retailers to deliver in time for Christmas. Retailers that use eBay Inc.'s GSI Commerce for fulfillment, for example, were able to push their final shipping cutoff for Christmas Eve delivery to 11 p.m. Dec. 22, one hour later than in 2011 thanks to improvements GSI made to its operations during the year.
Saks Fifth Avenue, meanwhile, offered free shipping and guaranteed delivery before Christmas on orders placed before 4 p.m. on Dec. 22, complete with a free gift box and decorative bow. American Eagle Outfitters Inc. shipped all items for free through Dec. 20. Sears Holdings Corp. shipped items free until midnight on Dec. 20, and Macy's promised free shipping through Dec. 20 and delivery before Christmas on purchases of $99 or more.
"Shipping strategies have been trending in the same direction for the past few years—'free-er' and faster," says Dias of ShopRunner.
If there was one feature of the season that was not up and down, it was the growing tendency of consumers to shop with their smartphones and tablet computers. Many retailers reported strong growth in mobile sales and traffic this holiday season compared to 2011.
IBM Corp. says mobile devices accounted for 15.8% of e-commerce sales in December 2012, up from 11.0% in the same month a year earlier. 22.7% of consumers used a mobile device to reach a retail site, IBM says, with 8.8% coming from Apple iPads, much of it at night and on weekends. Shoppers on the iPad converted at a rate of 4.8%, compared to 3.0% for mobile shoppers overall, says IBM, based on data from 500 e-retailer clients.
Flash-sale retailer Rue La La says four of every 10 orders it received over the holidays came from a smartphone or tablet and that mobile sales accounted for 40% of holiday revenue. "Two seasons ago, mobile accounted for only about 5% of our sales," Steve Davis, president of Rue La La, says. "Our mobile growth has been astronomical."
The average order value stemming from smartphones was a little lower than orders coming from computers, Davis says, and the average order value from tablets a little higher. And many Rue La La customers used all three types of devices to complete their holiday shopping. Rue La La registered a 70.1% year-over-year increase in December in shoppers accessing the retailer from three screens and says three-screen customers are more than 500% more valuable than one-screen customers.
That's encouraging Rue La La to raise its investment in mobile this year, he says. "The success we experienced this holiday season and throughout all of 2012 has proven to us that this is an important channel for 2013. We will be expanding the team and aggressively testing and releasing enhancements to ensure we are delivering the ultimate shopping environment."
Shoppers started consulting these mobile devices early in the season, several retailers report. For eBay's marketplace, U.S. mobile sales volume rose 133% year over year on Thanksgiving and 153% on the day after the holiday. On Cyber Monday, eBay's U.S. mobile sales volume more than doubled.
Mobile commerce sales doubled year over year over for the long Thanksgiving weekend at Wine.com Inc. 22% of total sales for the period from Thanksgiving Day through Cyber Monday came through Wine.com's m-commerce site, its iPad app and customers shopping the Wine.com e-commerce site on a tablet, CEO Rich Bergsund says. He says Wine.com's mobile conversion rate also increased 15% year over year for the weekend. Tablet sales made up about 90% of mobile sales, with two-thirds of tablet sales coming through the browser and one-third stemming from the retailer's tablet app.
Such strong results reinforced Bergsund's plans to focus more on mobile this year. The retailer has new mobile products in the works under the Wine.com and WineShopper brands, and it is now working with wine-related apps, such as Hello Vino, paying them affiliate fees for directing traffic to Wine.com's mobile site.
Stronger mobile marketing likely will be on the to-do lists of other online retailers, along with finding creative ways to keep shoppers engaged beyond just the peak days of November and December 2013, and coming up with a strategy to deal with a shorter holiday season. But they better get to work. The clock is ticking.