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BusinessWeek: January 10, 2000 |
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News: Analysis & Commentary
Shop Till the Ball Drops Consumers go on a buying binge that could last well into the new year
E-TAIL BACKLASH. And, despite predictions that online shopping would divert consumers from real-world stores, it looks as if almost everybody shared in this orgy of separating Americans from their wealth. Indeed, if anybody has to worry about a January hangover, it is the "e-tailers," many of which piled on huge discounts and promotions to push up volume--no matter what the cost (page 44). On the Monday after Christmas, investors started dumping stocks of such e-tailers as eToys and Amazon.com on concerns about profit problems and a possible backlash from consumers who experienced poor service. eToys CEO Edward C. Lenk says the company delivered 90% of its orders on time, fulfilling more than 1 million holiday orders. "In the overall context of scale, volume, and quality, we delivered," Lenk says. More broadly, the consumer binge could give the Federal Reserve more reason to raise rates to cool an overheating economy in February. "The Fed can't dodge another gross domestic product growth rate in excess of 4%," says Cary Leahey, senior economist at Primark Decision Economics Inc. in New York. "They don't want to take any chances." This season for all retailers was made possible by folks like Bonnie Cole, a fourth-grade teacher in Issaquah, Wash. The 50-year-old mother of two epitomizes the new consumerus americanus--a species of "cross-shopper." Like millions of others, Cole ventured online to shop for the first time this Christmas. For her husband, she bought science-fiction novels from Amazon.com and a $90 stainless steel exhaust extension from ecorvette.com. But she also drove over to the mall to snap up glassware and apparel at Bon Marche and discounted outerwear at Helly Hansen, a nearby warehouse-style outlet. "I go all over the place," says Cole, whose Christmas bill totaled about $3,500, some $500 more than she spent last year. The final tally for this holiday spree won't be known until early January when retailers report December sales. But many economists and retail analysts say holiday '99 surely set records. Carl E. Steidtmann, chief retail economist of PricewaterhouseCoopers, figures retail sales, excluding autos, hit $574 billion in the fourth quarter--a stunning 8% gain and the biggest jump since 1984 (chart). With low unemployment, strong income growth, and healthy consumer confidence, "This is as good as it gets," says Steidtmann. Many traditional retailers may even see fatter margins. Instead of focusing mainly on sale items--as customers have done in recent Christmases--they snapped up pricier goods. The Coach store in Boston's tony Back Bay did a brisk business in $42 leather dog collars, $48 leashes, and $108 dog coats--driving its year-over-year gross up by 30%. Elsewhere, pashmina shawls, cashmere sweaters, Waterford crystal, and DVD players were all hot sellers. Among the big movers at Macy's West was merchandise to commemorate the millennium--everything from special champagne flutes to formal wear. "Our men's tuxedo business was sensational," says incoming Macy's West CEO Jeremiah J. Sullivan. ILL-SPENT AD DOLLARS. Still, for the unfortunate few, 1999 will be remembered as a missed opportunity. Both Sears and J.C. Penney, which have been struggling to boost sales all year, expect their December sales to be flat. Toy sales might be another disappointment, says analyst John G. Taylor of Arcadia Investment Corp. in Portland, after a year in which there was just one white-hot property--Pokemon. Most traditional retailers, however, did surprisingly well, considering the huge advertising and promotion efforts by dot.coms. Some of that money already seems ill spent. David A. Blohm, CEO of SmarterKids.com, an educational toy e-tailer based outside Boston, says Christmas sales "basically came in as expected." In the dot.com world, that's underwhelming: Stock in SmarterKids, which went public in November, is trading at half its opening price. Blohm is particularly disappointed in his TV ads. "There was just too much clutter out there," he says. Overall, however, the online stores managed to meet or even exceed the hyper expectations investors had. The Boston Consulting Group and Shop.org, a trade association of online retailers, estimate that online sales for November and December surged 300% over last year to about $10.5 billion. Despite scattered reports of late shipments and other service problems, "the holiday established e-tailers as being for real," says Robert F. Buchanan of A.G. Edwards & Sons. In the brick-and-mortar retailing realm, data from check acceptance company TeleCheck Services Inc. shows that all regions of the country shared in the boom. New York led the way in conspicuous consumption with a 7.2% same-store sales gain. The wealth has also been spread among top retail chains. Analysts expect the winners to include Federated Department Stores Inc., owner of Bloomingdale's and Macy's; discounters Wal-Mart Stores Inc. and Costco Wholesale Corp.; and specialty-apparel retailers American Eagle Outfitters Inc. and The Talbots Inc. Consumer electronics chains also found their stockings stuffed. New products such as DVD players and digital cameras are boosting same-store sales at the 354-unit Best Buy chain in the mid-single digits. Best Buy is coming off a strong showing last year, estimates analyst David A. Schick of Robinson-Humphrey. Some clear winners and losers are emerging in the online world, too. Toys `R' Us Inc.'s Web site couldn't handle the surge in traffic after a big print promotion. Then, it couldn't ship some gifts in time for Christmas. Laurie Windham, CEO of market researcher Cognitiative Inc., notes that it took her two hours to buy 12 items on Gap's slow site. "It was abysmal," she says. Mighty Wal-Mart, which pushed back its upgrade of Wal-Mart.com to early 2000, warned customers that it couldn't guarantee Christmas delivery after Dec. 14. Unlike Wal-Mart, some e-tail upstarts could be in trouble if, when all the numbers are tallied, they didn't get their share of the spoils. Jaime Pereira, a partner at Ernst & Young who oversees retail accounting, figures venture capitalists will soon pull the plug on the weaklings. "Many will be acquired or go out of business," he says. Consumers, on the other hand, are expected to keep hard at it. The latest survey of consumer confidence, released on Dec. 28, showed optimism at record highs. And many consumers, says Steidtmann, will have money on hand that they stockpiled against a Y2K emergency. So, he's projecting a healthy 5.5% gain in retail sales for 2000. That's one way to kick off a new American Shopping Century. Return to top | |
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  Return to top E-Tailers Keep Giving Away the Store By her reckoning, Mary Wisner's best deal came in October from BravoGifts.com: a pair of $75 North Face computer bags were hers for the shipping costs of $4.95 each. But she snagged many more bargains as she zeroed in on Web sites that were doing all they could to boost fourth-quarter sales. Through a promotion at PlanetRX.com, she scored $600 worth of merchandise simply by referring friends to the site. Then there were the six children's sleeping bags--$1.98 each after the $10-off coupons she won on DSports.com's football quiz. By Thanksgiving, Wisner had so many Net freebies she started donating them to local charities. Wisner, who works as a technical writer for Computer Associates International Inc. from her home in Lake Wylie, South Carolina, figures she spent $255 on the Internet over the course of the year--for goods she might have paid $3,202 for at the mall. "A DO-OR-DIE CHRISTMAS." As Wisner can attest, Internet retailers, in their feverish quest to build market share, virtually gave away the store this year. Fueled by a seemingly endless flow of funding from venture capitalists and stock offerings, Web startups spent lavishly on TV and print ads and baited consumers with unheard-of bargains. "Many companies considered this a do-or-die Christmas," says Lise J. Buyer, an analyst at Credit Suisse First Boston. "At the rate they're subsidizing prices, there's no question that the knowledgeable consumer could clean up." Consider Perfumania.com, for example. In addition to a sweepstakes to win a 2000 Corvette and an ongoing five-items-for-$25 promotion, the online affiliate of the Miami discount fragrance chain picked one "secret shopping day" during Christmas week and fulfilled all orders that day for free. The company estimates it rebated $25,000 to lucky customers. Up-front discounts to snare new customers abound. At Vitamins.com, first-time buyers can get $25 off any order of $25.01 or more, and there's no charge for shipping. But the savviest Web consumers revel in complex online rebates that go beyond conventional bargains. At bulletin boards such as misc.consumers.frugal-living and Moms Online on America Online, shoppers swap discount codes that, when typed in at an online checkout, reward the shopper with everything from dollars off to free shipping. They also take advantage of affiliate programs through which Web merchants kick back part of the purchase price to sites that refer shoppers to them; some of those referring sites, such as BizRate.com and credit-card company sites, then pass the rebates on to the consumer as part of their own drive to boost traffic. According to BancBoston Robertson Stephens' annual holiday shopping survey, fully 40% of this season's Internet buyers took advantage of such promotional schemes in the shopping period before Christmas, says analyst Lauren Cooks Levitan. She scored a discount on a watch for her husband at luxury goods purveyor Ashford.com. "It's an incredible opportunity for consumers, but it can't go on forever," Cooks Levitan says. Indeed, in January, the Internet merchants will start toting up the damages. It's a sure bet that their record revenues will be dwarfed by marketing and promotion losses. "That will determine who gets the next round of financing," says Buyer. But for now, at least, it's a shopper's paradise. Take www.drugstoredepot.com, which isn't going online until later this year, but is already e-mailing out dollars-off coupons to all comers. "I figure that if you paid more than just shipping, you paid too much," Wisner says. Maybe there's another online opportunity in that--freeshipping.com. Return to top |
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