E-Commerce Expectations Need Last-Minute Shopping Surge

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NEW YORK -- Consumer activity in the final shopping days before Christmas needs to pick up for holiday Internet sales to meet their most optimistic growth projections, e-commerce analysts said Monday.


Gian Fulgoni, chairman of comScore, said his measurement firm tracked a slowdown in Internet shopping activity after a brief spurt following Thanksgiving. ComScore has forecast non-travel e-commerce (excluding corporate and auction purchases) to be $15.1 billion to $15.5 billion, for growth of 23 percent to 26 percent.


"We've seen a little softness over the last couple of weeks," he said Monday at an e-commerce conference organized by Majestic Research, a New York boutique investment research firm. "The next 10 days are going to be very important."


Majestic Research echoed Fulgoni's caution that holiday e-commerce sales might reach the low end of expectations. It released a report that said non-travel e-commerce from Nov. 1 to Dec. 10 was up 22 percent from last year, below Majestic's 25 percent forecast. In 2002 and 2003, the second week of December saw the heaviest non-travel e-commerce, a trend that has not continued this year.


"There's no doubt we've seen some weakness," said Jon Steinberg, director of business development at Majestic.


Ken Cassar, director of strategic analysis for Nielsen//NetRatings, said consumers might be putting off shopping until the last week, having confidence in online retailers to fulfill last-minute orders. Goldman Sachs, Harris Interactive and Nielsen//NetRatings reported this week that 27 percent of shoppers had finished their holiday shopping by early December, down from 31 percent last year.


"Consumer expectations might have come around," Cassar said of faith that late-in-the-season online purchases will arrive in time.


Retailers are reminding shoppers it's not too late to shop online. Yahoo Shopping has a "Last Minute Gift Center" that shows merchants' shipping cut-off dates. According to CyberSource, which processes payments for Web sites, Dec. 14 likely will be the busiest online-shopping day of the year. Likewise, United Parcel Service and FedEx said they expect heavy shipping this week, thanks largely to online orders.


Even if the last 10 days of the season turn out weaker than expected, Fulgoni said, e-commerce looks poised to continue impressive growth. He noted that holiday e-commerce is still on track to grow more than 20 percent from last year, a trend he thinks will continue. Two major factors driving this are broadband reaching 50 percent of homes and increasing consumer Internet experience, he said.


ComScore tracked significant increases in holiday purchases from multichannel retailers such as Wal-Mart and Best Buy. Some have seen traffic and online sales increases near 50 percent from last year, Fulgoni said.


"This seems to be the season for the multichannel retailers," he said. "The multichannel retailers have figured out something very powerful."


Search marketing has been a key avenue for customer acquisition for Wal-Mart, which now buys "tens of thousands" of keywords, said Al Chang, director of software engineering for Walmart.com. The company has poured money into building its Internet presence. It introduced an online-only circular and advertised its Web site via direct mail to consumers in major markets without Wal-Mart stores.


Flowers and gifts, home and garden, apparel and office supplies have been the biggest e-commerce growth categories, according to Majestic. More mature online categories like computers and software, music and movies and books are seeing lower growth rates.


ComScore pegs search as a major driver of offline sales. A study it released Monday found that 25 percent of consumers who searched for consumer electronics or computer products made a purchase. Of those buys, 92 percent occurred at offline stores.


Fulgoni said the data make the case that search terms, despite rising costs, remain undervalued. Majestic pegs the average price per click at 50 cents for the major search engines. As multichannel retailers realize the potential for driving offline and online purchases through search -- 85 percent of which comScore found occur after the original search -- they likely will become even more aggressive in bidding for keywords, he said.


"You've got to look at the longer term when you evaluate pricing of search terms," Fulgoni said.


The result could be a sharper rise in keyword prices, which would hurt smaller, niche sites that have depended on search marketing as a cost-efficient customer acquisition channel. A study released this week by the Search Engine Marketing Professionals Organization concluded that keyword prices could go as much as 45 percent higher and still generate positive ROI.


"It's not such a good story for the pure plays," noted James Lamberti, vice president of marketing solutions at comScore.


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