Online retailers can toast to a good holiday period and overall strong 2004, thanks in large part to ever-growing numbers of people who use the Internet and other factors, said analysts.
Online sales during the months of November and December hit $22.1 billion, up 22 percent from the same period a year ago, according to JupiterResearch.
“The Christmas season is especially well suited for online retail,” said Jupiter analyst David Schatsky. “It’s a time that attracts new users at a higher rate than others because online shopping is so good for gift giving.” Consumers like the convenience of being able to ship presents directly to the recipient, and convenience plays a big role in most online activities, he said.
Other factors that helped drive sales in the fourth quarter were early promotions and late gift card offers, according to a Forrester report released in January. For instance, Best Buy reported that sales of gift cards online increased 30 percent over last year, and The Sharper Image said that online gift card sales grew 35 percent, the report said.
JupiterResearch also found that more online shoppers are turning to the Web for holiday shopping. The percentage of online buyers who made a purchase in the holiday period increased to 80 percent from 75 percent the year before. In addition, 76 percent of shoppers bought from a site they hadn’t purchased from previously. Shoppers spent an average of $244 each during the season, compared to $248 last year, according to JupiterResearch.
Online sales for all of 2004 rose by a similar percentage. Sales reached $137 billion in 2004, a 20 percent increase over 2003, according to Forrester. Sales are expected to reach $175.3 billion this year, a 21 percent gain over 2004, Forrester said.
The primary reason for the increase in sales for 2004 is that the population of people online continues to grow, as do the number of people who use the medium to shop, said Schatsky. “Obviously online retailing is still not as mature as offline retailing, so it’s growing substantially faster than the retail industry overall,” he added.
Curiously, Thanksgiving Day — rather than Black Friday or the following Monday — has been the biggest day for visits to e-commerce sites (both retailers and comparison shopping sites) two years in a row. Bill Tancer, vice president of research for Hitwise, said he suspects people are researching products and stores to visit in person the next day. Hitwise tracks traffic, not sales.
Last year was also a watershed for traditional retailers on the web. Multichannel retailers are starting to overtake pure plays, according to Tancer.
“In terms of what was popular this holiday season, the thing that stuck out to me was the increase in market share of some of the offline department stores,” he said. For example, Wal-Mart increased its market share (of visitors) by 22 percent in the last week of November. Target and Sears both increased their market share of traffic by 8.5 percent in the same week.
Many retailers and apparel manufacturers launched (or relaunched) e-commerce sites last year, including Circuit City, T.J. Maxx, Bergdorf Goodman, Liz Claiborne, and Free People. Wal-Mart also started selling apparel on its Web site in July, a category that it had dropped from its online store in April 2001.
Pure-play retailers are still doing well, but Wall Street has sent stock prices down because of fears of increased competition and failure to meet expectations. For example, when bellwethers Amazon and eBay reported strong growth and profits for the fourth quarter earlier this month, their stock prices fell by as much as 40 percent, according to news reports.
Last year’s strong performance comes on top of the milestone achieved in 2003, the year most retailers achieved profitability. The average operating margin for that year was 21 percent, according to Forrester, up from break even (zero percent) in 2002 and minus 6 percent percent in 2001.
“We were floored,” said Johnson during a presentation on the state of retailing online at the National Retail Federation convention in New York in January. “It’s more confirmation that retailers aren’t just making it work. They’re making it work quite well at this point.”
“What we’ve seen over the last few years is that retailers who’ve stuck around have been relentlessly improving the efficiency of their online operations,” said Schatsky. “Order fulfillment and inventory management [have gotten better] and they use promotions in a much more tactical and limited way. In the heyday of e-commerce, everything was discounted and everyone got free shipping. Now you see much more targeted promotions that are intended to drive desired behaviors for the consumer.”
For example, he cited free shipping on orders over $50, which Amazon and other retailers offer to increase their average order size.
The bottom line, he said, is that e-retailers aren’t spending as much on marketing and other costs. “They’ve improved their efficiency and they’re more reluctant to compete solely on price,” he said.