By and  on December 17, 2008

From Amazon to Yahoo, the e-commerce industry — largely based in the West — has been resilient during one of retailing’s darkest hours, with a mix of discounts, customer service upgrades, shipping deals and enhanced assortments.

Although not immune from recession fallout, online retailing has the advantage of a clientele that remains relatively affluent, as well as enhanced convenience and service and competitive pricing, experts said.

“The value of what online presents is being magnified at a time like this,” said Patti Freeman Evans, vice president and research director at Forrester Research, which has projected Web sales growth of 12 percent this year “When things get bad, deep and long from a recessionary perspective, nobody is on the sidelines. However, because the online customer is more affluent, because it is still a bit of a new market and because of the benefits of shopping online are so directly aligned with peoples’ needs right now, you see a little extra life.”

The major e-commerce players, including Amazon, eBay, Yahoo Shopping and even wal-mart.com, are predominantly run out of Northern California and are significant drivers of the state’s economy, which is sagging under a budget deficit that might reach as much as $41.8 billion in the next 18 months, rising unemployment, falling home values and declining consumer spending.

Pure e-commerce, online components of traditional retailers and online auction companies in the U.S. employed more than 381,000 people last year and generated $171.2 billion in revenues, according to research firm IBISWorld.

To be sure, major sites such as eBay and Yahoo have slashed jobs and seen their stock prices fall. Yahoo’s stock price fell to $13.36 on Tuesday from $23.04 on Dec. 17 last year, and eBay shares have tumbled to $15.17 from $31.89 during the same period.

Online holiday sales, however, are edging up even as the National Retail Federation predicted traditional retail will crawl 2.2 percent ahead of last year and deep discounts seem to be doing little to goad shoppers into opening their wallets wide.

Market research firm comScore reported that e-tail sales increased 15 percent on Cyber Monday, the kickoff to online holiday shopping on Dec. 1, to $846 million, and rose 3 percent from Dec. 1 to Dec. 12 to almost $8.3 billion, although sales turn flat when extending the period to Nov. 1. Results from the first half of this week could boost the figures because it is expected to be one of the heaviest stretches of online shopping this year.

Overall, e-tailers known for their value have fared better than their online higher-end counterparts.

“Walmart.com traffic and sales increased steadily over Thanksgiving Day, Black Friday and Cyber Monday” compared with last year, said spokesman Ravi Jariwala. “We’ve implemented several programs designed to save our customers money.”

Among companies with portfolios containing a range of e-tail destinations, those with affordable pricing have been winners. Eric Jones, chief executive officer and president of Santa Barbara, Calif.-based Luxury Apparel Group, owner of luxury fashion e-tail destination CoutureCandy and discount designer apparel destination LabelSpree, said the discount site is a key growth driver this holiday season.

Backcountry chief marketing officer Dustin Robertson said the Park City, Utah-based outdoor e-tailer shies away from deep discounts and will be up slightly from last year, while its lower-price affiliates, including Tramdock and Steep and Cheap, are growing at 100 percent year-over-year. At comparison shopping resource Yahoo Shopping, general manager Greg Hintz detected as early as spring that online coupon usage was up double digits year-over-year. To capitalize on online coupon growth, Yahoo Shopping introduced Yahoo Deals at deals.yahoo.com as a one-stop destination for coupons, ads and sales information. Last week, traffic to Yahoo Shopping was up 10 percent from the previous year.

“It has been more successful than we expected,” said Hintz of Yahoo Deals. “I do see this continuing to go forward.…People are going to be trained to come online and find coupons and save money. We are going to keep on investing in the deal site and adding features.”

Shipping deals have also proliferated online. A survey by Shop.org, the NRF’s digital division, found that 78 percent of online retailers planned to provide free shipping for the holiday, albeit with conditions such as minimum purchase amounts. In a recent survey by Los Angeles-based comparison shopping site PriceGrabber.com, 45 percent of respondents said they were interested in buying only from online merchants with free shipping. PriceGrabber.com in October began aggregating products with free shipping at Freeshipping.pricegrabber.com.

Amazon has touted its Amazon Prime program, which provides unlimited express two-day shipping for Amazon users in the U.S. who pay a $79 fee, as a compelling option for online shoppers. “Once a customer is a Prime member and starts getting things expressed two days for free, it is something very difficult to get off of,” Thomas J. Szkutak, chief financial officer and senior vice president of Amazon, said at an investor conference last week.

Traditional retailers have entered the online deals territory this holiday season with aggressive markdowns that may have siphoned off some consumers less accustomed to the Web and drawn to the immediate gratification of store shopping, said Patrick Byrne, ceo of Overstock, based in Salt Lake City. “We are in a very competitive environment — more than we have ever seen,” he said. “Word on the street was that the good deals this year were in brick-and-mortar. We are hunkering down in the bomb shelter to withstand the radioactive plume overhead.”

In an online environment flooded by discounts and shipping promotions, those offers alone don’t distinguish one e-tailer from another. That’s where customer service and selection comes in. Many online retailers have sought a broader pool of consumers by expanding their assortments. Seattle-based Avelle added watches this year; Gap Inc.-owned online accessory site Piperlime is offering handbags for the first time, and Skymall.com expanded its holiday selection to 15,000 items from 7,000.

More generally, online retailers have been enlarging their apparel and accessories collections, the fastest-growing product category tracked by comScore during the Dec. 1 to Dec. 12 period with a 21 percent increase.

Aliso Viejo, Calif.-based Buy.com has doubled its merchandise catalogue in the last year, a move that ceo Neel Grover credited with pushing the site beyond is primarily male gadget fan audience. “We had about 2 million products for several years. The core was media, computers and electronics, but have branched out more recently to include a much wider spectrum of categories,” he said.

Overstock’s Byrne said the closeout destination’s selection of apparel and jewelry is larger than in past years. “That is turning into a very nice category for us,” he said. “It is second tier, but it is close to being first tier.”

The sour economy has been a boon to Overstock’s selection as manufacturers need to off-load merchandise. “We are getting calls from manufacturers that wouldn’t even return our calls two years ago,” Byrne said.

At Yahoo Shopping, apparel became the number-one search category this year after eight years of consumer electronics’ dominance. At PriceGrabber, president Ron LaPierre reported that searches of women’s skirts and dress suits were up 227 percent year-over-year, women’s overalls and jumpsuits increased 129 percent, and women’s boots were 31 percent higher. “It is practical stuff,” said LaPierre of the apparel pieces that PriceGrabber users are looking for this season.

Yahoo Shopping’s Hintz, who singled out Ugg boots in particular as a frequently searched item, said shipping offers and simpler returns, abetted by providing return labels and packaging, have contributed to the mounting popularity of apparel online. Apparel’s online growth could also be a consequence of more women, who have historically followed men on technological adoption, migrating online.

The impact of customer service programs on revenue are difficult to quantify, but that hasn’t stopped online retailers from pursuing better service. Avelle, operator of online rental service Bag Borrow or Steal, brought its customer service in-house this year and ceo Michael Smith said that is partly responsible for the company’s largest jump in return customers in November since its 2004 founding.

“The customer service piece is something that we have always believed strongly in,” Smith said. “We all come from places like Nordstrom and Lands’ End. We wanted to get closer to the customer, and we feel that with doing it ourselves we can provide better service.”

Online firms have aided shopping with reviews, as well. A Shop.org survey found that about one-third of online retailers added product reviews this year. SkyMall.com and costco.com, which launched product reviews this year, have discovered they are valuable tools to get feedback about online customer service. “Anything that has to do with tailoring the experience to you as you shop — we are seeing nice results from. We are looking at how to leverage that,” said Christine Aguilera, ceo of Phoenix-based SkyMall.

Despite attempts to improve customer service, online satisfaction has slipped this holiday shopping season. According to ForeSee Results, which measures online customer service satisfaction, that metric was down 0.91 percent to 76.6 on Cyber Monday, 0.93 percent to 76.3 from Dec. 1 to Dec. 7, and 3.09 percent to 75.2 from Dec. 8 to Dec. 14.

Larry Freed, president and ceo of ForeSee Results, expected the lower figures given the economic climate. “I’ve still remained cautiously optimistic,” he said, while admitting the drops are “starting to look a little worrisome.”

Online customer service and selection improvements are not just about short-term gains. Freeman Evans of Forrester Research estimated that new online buyers, a group that is dwindling as Internet use proliferates, will account for one-third of holiday sales this year. Pleasing new and longer-term clientele could generate loyalty as returning customers become more critical in a maturing online environment where new customers get rarer. IBISWorld’s senior analyst George Van Horn predicated that e-commerce growth rates will be in the 8 percent range in the next few years, versus 20 to 25 percent in its formative years and 12 to 14 percent from 2004 to 2007.

“We will see more efforts toward long-term relationship development” as online retailers mature, said Freeman Evans. Overstock already has plans to retool its loyalty program, called Club O, in the first quarter to enhance its customer relationships.

Online players are keenly aware that the impression they make this holiday season, during which consumers are focused on value, could affect their performance down the line — a by-product of online shopping satisfaction isn’t obvious in holiday financials.

“We have always believed that good companies gain market share in down economies,” said Ginnie Roeglin, senior vice president e-commerce and publishing at Issaquah, Wash.-based Costco, “We are trying to make sure we are the best value in the market and at a time like this, when people are paying attention to that, I think you do capture market share.”

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