The giveaway is over. Fiscal responsibility is in. No, we're not predicting the November elections - just conveying the conventional wisdom that online retailers won't give away the store this holiday season the way they did last year.
In their desperate search to at least show a path toward profitability, online retailers will have to be a little more Grinch-like with the giveaways this season.
"We have trained the online consumer to expect all kinds of discounts and price breaks," says Elaine Rubin, chairman at industry association Shop.org, "but everybody's under pressure this year to be profitable."
The struggle to hold the line on prices, and with them gross profit margins, is shaping up to be a central holiday-2000 theme. Beyond that, the story starts getting pretty involved.
Yes, the season should be a big success for the industry, in revenue as well as operational terms, forecasters say. Despite prominent foul-ups last holiday season, 97 percent of the shoppers plan to be back this year, according to a study for AT&T, and they will be joined by many new customers - 14 million, for a total of 55 million, if Nielsen//NetRatings is right. Average fourth-quarter spending should hit US$280 per shopper, up from US$215, though still a mere 1.5 percent of total retail spending, says research by eMarketer.
No, the revenue gains won't be anything like last year's 200 percent or 300 percent; November and December sales, including travel, should rise 66 percent to US$11.6 billion, according to Jupiter Research. "One thing e-tailers have to accept is, once the industry reaches a certain size, it can't keep tripling every year," says Sean Kaldor, NetRatings' e-commerce vice president.
And weaker players will keep falling by the wayside. "Wall Street doesn't care about revenues now," Kaldor says. "They care about profits. This is a make-or-break holiday season for a vast majority of middle- and [small-sized] e-tailers. There will be victims that did everything right."
Complicating matters is a cloudy outlook for holiday sales overall. Consumers, though enjoying high employment, are grappling with high debt levels, spiking energy prices and sinking stock portfolios.
This could actually help online retailing, analysts say, insofar as it fulfills frugal consumers' hopes for good values as well as convenience and reliability. Besides, the online shopper remains more affluent, and so perhaps less subject to the economic winds.
Profits are another matter. Merchants from time immemorial have been torn between the need to turn a profit and the impulse to bring in the customers no matter what it takes in the way of sale events and promotions.
This year, the dilemma is particularly excruciating. Since the Nasdaq nosedive of March and April, the financial markets have turned from Santa Claus to Scrooge when it comes to e-tailers. Pure-play Internet merchants have seen scores of their number fall by the wayside, unable to secure additional capital because business-to-consumer is out. Nearly everyone has forsaken the goofy multimillion-dollar TV commercial campaigns and proclaims to have found the true path to profitability.
Trying to build a business on the back of losses is a mug's game anyway, says John Woodson, president of the Internet division of brick-and-mortar entertainment retailer Babbage's Etc. "I get paid in dollars, not hits - and our Web sites have to earn their way in dollars, not hits," he says. "All these guys that tried to operate on offering deep discounts are now falling by the wayside. You can't run a physically-fit business that way."
Still, the Web consumer is characteristically a price-sensitive shopper. And who knows what sorts of fire sales might emerge, or how fast and far the flames of deep discounting and free shipping might again race across the competitive virtual landscape? "Retailers are indeed caught in a really rough bind," says Geoffrey Ramsey, eMarketer's "statsmaster."
Amazing-Bargains.com, a site that combs the Web for deep discounts, seems to be having no trouble fulfilling its pledge of providing hundreds of scorching Internet deals. One day this month, Barnesandnoble.com was seen offering US$10 off a US$30 order on the Amazing-Bargains site; Amazon.com offered the same on toys; Shoebuy.com offered free shipping plus 20 percent off any order; Buy.com offered US$30 off US$150 orders from new customers; Pets.com gave US$10 off a US$20 order; and on and on.
But it's this financial tension between the retailer's desire to boost sales and gain market share and the demands of the Grinches on Wall Street to show profits that could provide the season's big drama, in place of last year's foul-ups and flake-outs.
After all, Toysrus.com, which sometimes seemed determined to mess up each and every step of the online holiday buying process, has in some ways taken itself out of the picture, belatedly ceding online operations to archrival-turned-partner Amazon. By all accounts, the industry has spent much of the year, and much capital, making sure customers are happy.
"The e-tailers are going to be much better prepared in terms of both handling the traffic and the level of service that customers will be expecting," says Seth Geiger, professional services vice president at BizRate.com. Wal-Mart.com was so determined to make the best of the season that it took the shocking step of suspending sales for most of October - at least - while it installs technology acquired from HomeWarehouse.com to improve shoppers' experiences.
Other multichannel retailers, such as Gap and sibling Old Navy, are coming on strong. "Revenge of the brick-and-mortars" may yet turn out to be another key seasonal theme - finally - as most analysts anticipate. But with the Toys "R" Us and Wal-Mart Stores moves, it's certainly off to an odd start.
