E-tailers Get in Holiday Mood

In releasing third-quarter earnings last week, Amazon.com CEO Jeff Bezos said he expects the next couple of months to bring the company its “biggest holiday shopping season ever.”

Bezos is not alone in that sentiment. Forrester analyst Carrie Johnson said online sales have been “on fire” this year, and that momentum shows no slowing. “What does this mean for the holiday season?” she wrote recently. “Online cash registers will ring furiously as consumers sustain and accelerate their spending on hot online categories like apparel, home decor and sporting goods.”

Forrester expects that in the period between Thanksgiving and Christmas, online sales will jump 42 percent from last year’s $8.4 billion to $12.2 billion. The Cambridge, Mass., research firm expects full-year online retail sales to surpass its original forecast of $96 billion and reach more than $100 billion.

Johnson said that as online shopping becomes more mainstream, Web merchants will need to respond quickly when offline retailers start early holiday promotions to woo consumers. According to Johnson, Internet retailers typically offer “free shipping, because online consumers put it at the top of their wish lists, and conditions like minimums will stimulate sales while limiting actual redemption.” All of this activity drives sales but eats into profit margins.

Given the ease with which shoppers can make comparisons on the Web, their behavior is increasingly driven by price and perks such as free shipping.

“Consumers are becoming increasingly deal-hungry and are leaning on comparison shopping sites to satiate that hunger,” said Chuck Davis, CEO of BizRate.com, in a statement. “As a result, this holiday quarter we expect to see more shoppers being very price- and free-shipping sensitive.”

The average Internet transaction amount in the third quarter, for instance, dropped 15 percent from $145 in 2002 to $123 this year, according to BizRate.com. Some 45 percent of online shoppers surveyed by BizRate.com said they would not pay any price premium at all this holiday shopping season. The Los Angeles research firm expects online sales in the fourth quarter to jump 22 percent.

Shop.org said that online retailers now account for nearly 5 percent of all retail sales. It took catalogs 100 years to reach that level, and industry observers argue that online shopping is fast becoming a preferred alternative (particularly during Christmas) to packed malls and long waits at cash registers. While overall retail sales rose 2 percent in November and December 2002 combined, online sales jumped 23 percent during that period.

“Consumers are voting with their fingers,” said Ken Seiff, CEO of Bluefly.com, which sells designer goods at discounts. “They want to avoid lines and crowds.”

One industry change that has helped fuel that exodus is faster shipping times for online retailers. “The logistics have gotten so much better—online retailers have much better systems and infrastructure in place,” said Seiff. “If traditional retailers show growth this holiday quarter—and they expect to—then online retailers can expect to benefit disproportionately.”

“We should have a pretty strong holiday season,” said Yahoo! rep Stephanie Iwamasa. While Iwamasa said Sunnyvale, Calf.-based Yahoo! does not break out quarterly figures, the company is bullish based on optimistic predictions by forecasters.