E-tailers' Christmas Wish List


By Karen E. Klein With consumers distracted and normal shopping patterns noticeably disrupted this fall, what does all the uncertainty in the economy portend for the holiday shopping season -- particularly for small e-tailers? The question is of vital importance to entrepreneurs, many of whom rely on November and December to bring in between one-third and one-half of their total annual revenues.

"Smart Answers" recently checked with online retail experts and small-business owners who operate their own Web sites to see how they are preparing for the holidays. Their thoughts and advice will be the subject of this column and the next.

While a slowing economy will likely mean a sluggish retail season overall, experts are predicting that online purchasing in 2001 will grow 10% to 20% over last year. Rob Leathern, an analyst with Internet research firm Jupiter Media Metrix, says that, despite this fall's gloomy economic climate, Internet shopping is not going to nose-dive.

While the growth rate is down from 2000, when online sales were up 54% over the previous November and December, the overall trend is still moving up -- a development that reflects both consumers' growing familiarity with online purchasing and continued improvements in Internet access, Leathern says. The impulse to stay closer to the perceived safety of home and avoid shopping in crowded malls might push consumers to do more shopping via their computers, but Leathern says he doesn't foresee any one factor strongly influencing gift buyers to make their purchases over the Net.

GUARDED OPTIMISM. Lucy Reid, CEO of BigStep, a Web hosting and online marketing firm, is optimistic when she talks to her small-business clients about this season. "A lot got their Web sites up in time for last year's Christmas holidays, and they saw their orders triple or quadruple in the six weeks prior to Christmas. We're expecting Christmas this year to be at least double last year," she says. "Of course, the sites that will see the best numbers are the ones that work well and whose owners are proactive with marketing."

Ken Harris, CEO of online gift-basket bakery Mrs. Beasley's, says he's taking a cautious approach. "This is the first time in my business career that I have not been able to look out 60 days and predict where my company will be," he says. "Food is generally a comforting thing, and even with business down, our clients still want to recognize their best customers at the holidays, so I was feeling pretty confident before the anthrax scare. Now I'm not sure how we'll do with problems with mail and delivery."

Because of the uncertainty, Harris and other e-tailers have taken some steps to rein in expenses and improve their chances of increasing orders this holiday season. Their advice is to:

Face economic reality by cutting expenses and controlling inventory. Harris decided to cut his fall catalog circulation from 1.3 million to 650,000, saving $300,000 in printing and bulk mail costs. He'll still mail three catalogs over the holidays to his existing customers, but he won't spend money to send catalogs to "prospects" -- those who have never ordered from the company before. "People won't be in the gift-giving mood until late [in the shopping season], and then they'll most likely buy from brands they are familiar with," Harris reasons. "Bulk-mail delivery is backed up in the first place, and whatever is getting out there won't be well read right now. Consumers are not in the right frame of mind to act in this

environment."

FLEXIBLE HIRING. Harris also has decided not to stock up on his holiday inventory, but to make the components ahead of time and bring on additional staff in December to assemble baskets if the demand is there. At peak production, Mrs. Beasley's can ship 30,000 baskets of muffins, cookies, cakes, and pastries a day. "This year, the [pressure period] will last longer, but we'll be able to meet last-minute demand without taking a huge inventory risk," he says.

Update search engine listings seasonally, particularly during the holidays. Matt Johnson, CEO of Houston-based educational toy company Explore Toys, specializes in two themes: sea and space. The firm has found it effective to pay more for search-engine listings that emphasize water toys in the spring and summer, and then stress keywords like "science fair" in the fall and winter. "During the summer, sales dramatically increase on the sea theme, with water construction and water toys. In the wintertime, I lower the priority or drop the 'water toy' listing. We focus all our energies and money on what's hot," he says.

Johnson also rewrites and reworks his Web home page regularly -- at least once every two weeks -- to focus on the time of year and the items that are germane to the particular season. "Once customers land on our Web site, they want to see what's timely," he says, adding "We've got to grab them right away."

Another trick Johnson has found is to make sure that, when customers click on his listing at a search engine, they go straight to the page that carries the items they're looking for, rather than his home page. "You don't want them to have to dig through too many pages to find what they're looking for," he warns, "Our research shows that customers will tolerate one or two clicks, and then they're gone."

NICHE OPPORTUNITIES. Johnson is fairly confident about the holidays. "We were brand-new last Christmas season, and, so far, we're about doubling last year's sales," he says. "Due to consumer fears, there's some rocky feeling about it, but one of the nice things about being small and independent is that we can absorb some of the hit because we don't have a lot of overhead." Since several larger educational toy-store chains folded this year, Johnson has picked up closeout items for his inventory that he's featuring on his Web page. "We can offer some extreme discounts," he adds. "Something's going to fill the void that the bigger stores have left, and I feel that we're poised to do that to a certain degree."

Make sure your product mix reflects this year's economic reality. Just as Johnson is pushing closeout items, Harris is also giving his customers price breaks. "We've introduced several new $30 items, so we give people the opportunity to trade down from a $50 item," Harris says. The company has also brought back an early-bird discount to entice customers to get their holiday gift baskets ordered before the last minute.

"We're very fortunate that we're small and action-oriented," Harris remarks. "We can move very, very quickly to adapt to the needs of the marketplace, and that should give us a competitive advantage over our larger competitors like Harry & David, Omaha Steaks, and Mrs. Fields."

NEXT COLUMN: Dealing with packaging and delivery, marketing to your established customers, making sure you have both online and telephone ordering capability. Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


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