Happy holidays forecast for e-commerce
Some forecast a flush holiday season for online retail, as shoppers eschew gas-guzzling mall trips
Considering the current economic malaise, few expect the 2008 holiday shopping season to be stellar. But there are signs that some Internet retailers could see an uptick in sales during that period as consumers look to save money on gas by doing their holiday shopping on the Web — and retailers may look to capitalize by spending more advertising dollars online.
“Last holiday season, when gas wasn't as high as it is now, nearly a quarter of online shoppers said they were going online because of gas prices,” says Sucharita Mulpuru, retail analyst at Forrester Research. This year, she continues, the trend should be even more pronounced, with retailers such as Amazon.com faring well.
Amazon.com reported a 41% increase in net sales last month, which could be considered an early indication of how the fourth quarter could look. Mulpuru and others agree, however, that this good fortune won't necessarily be enjoyed by all online retailers — those focused on value and price will be most likely to benefit.
The upcoming holiday season is expected to be highly promotional, with online retailers using offers of free shipping to entice consumers to shop. However, Ellen Davis, VP at the National Retail Federation, posits that as transportation costs rise, retailers may pay for the cost of bigger free shipping programs by spending less on advertising and site improvements. “Online retailers would prefer not to offer free shipping, but shoppers may demand it,” she says.
The desire to find good deals is even driving a group of first-timers to shop online, Davis adds. “They see online shopping as almost a necessity,” she says, noting that some are not very familiar with e-commerce.
Though conventional e-commerce wisdom had said that online retailers should focus on retention because the number of new consumers in the channel was drying up, “retailers are starting to acquire a new type of customer — largely due to the economic environment,” Davis says.
So far this year, 75% of the retailers working with Google have not decreased their budgets despite the economic downturn. “Many retailers say they will increase their fourth quarter spend online,” says John McAteer, head of retail at Google.
Small Concept, a high-end children's clothing merchant with a store in Atlanta and an e-commerce site, increased its Google AdWords budget by 13% in the third quarter compared to the second quarter. Chuck Utterback, president of the retailer, expects to raise it even more fourth quarter, despite a drop in sales.
Though Utterback concedes that with most advertising media, “when consumers aren't in the mood to buy, you would cut back,” he notes that the online channel represents a more engaged customer for retailers to target. “With AdWords, we know that when consumers type in a string of words, they're interested,” he says.
However, McAteer notes, “retailers for the most part have not yet embraced this strategy,” with many still spending a significant portion of their budget on free-standing inserts in newspapers. To combat this, Google is trying to help retailers understand how online advertising can impact in-store shopping, recently running several tests using online media to drive in-store traffic.
In one of these tests, furniture retailer Rooms To Go used a combination of targeted search and online display ads with an in-store return of 7.5 times the ad spend. When compared to Sunday circulars, the online campaign resulted in ROI of three times the ad spend on average