Flat Holiday Sales for E-tailers?

(page 2 of 2)

Retailers consider the first Monday after Thanksgiving the symbolic start of their heavy selling season, and they've long counted on Web sales to pad their results. "The story for so many years was that online was this growth channel for retailers," says Sucharita Mulpuru, a principal analyst at Forrester Research (FORR). Now, even that avenue is closing. Forrester forecast on Oct. 21 that U.S. e-tail sales in Nov. and Dec. would increase 12% this year, compared with growth of approximately 20% in 2007. (Forrester conducted its e-tailing research in early October, while ComScore collected its data well before the latest round of dismal economic news.)

Gap Creates an Umbrella

To draw shoppers during a fallow season, e-tailers are cutting prices deeper (BusinessWeek.com, 11/24/08), and earlier than in the past, analysts say. Many are lowering minimum purchasing requirements to qualify for free shipping, and pulling out other tricks.

Starting in May, Gap (GPS) created a common checkout area for all four of its online stores—The Gap, Banana Republic, Old Navy, and Piperlime. That, combined with aggressive e-mail marketing, helped Gap increase online sales 15% in the third quarter, according to Thomas Harpointner, CEO of e-mail marketing company AIS Media. Online sales now account for nearly 8% of Gap's total. "Gap decided to combine all of their offline brands under one umbrella online," says Harpointer. "Shoppers have an easier experience." Gap is also offering customers free shipping on orders of at least $150.

EBay (EBAY) on Nov. 24 began selling two daily holiday "door busters," or loss leaders, for $1, including iRobot's (IRBT) Roomba and Apple's (AAPL) iPod. It's also giving away a few high-priced products for $1, including a Chevrolet Corvette (GM), according to a spokeswoman. The promotion lasts till Dec. 8.

Cutting Back on Tech

Still, retailers are finding that traditional holiday gifts, including computer gear and consumer electronics, aren't resonating with consumers this year. Goods not usually sold in great volume on the Web, like furniture and appliances, and fitness equipment posted healthy gains in third-quarter sales, according to ComScore. But sales of traditional online sellers like computer gear were flat, and sales of clothes, jewelry, and prerecorded CDs and DVDs declined. There's mounting evidence that consumers are cutting back on tech gadgets (BusinessWeek.com, 11/12/08), though tech products like LCD TVs, digital SLRs, and smartphones may hold up well (BusinessWeek.com, 11/25/08).

Yet there's also a sense that retailers need to do more to drum up excitement. Beside sales and free shipping, and a shift away from sometimes confusing rebates, most online retailers haven't done much innovative merchandising this year, says Stephen Baker, a vice-president at market researcher the NPD Group. "The concept of selling extreme values in limited quantities is not anything new," he says.

Blowout prices may help e-tailers weather this year's tepid holiday sales season. Not everyone can turn loose a physics PhD on its e-commerce site. But if the economic downturn persists, stores will need to come up with some fresh ideas of their own.

Ricadela is a writer for BusinessWeek in Silicon Valley. Additional reporting by Amanda Zusman, an intern in BusinessWeek's Chicago bureau.