Web Merchants Fish for New Holiday Hooks

As Web merchants head into the holiday season, e-tail marketers are looking at a whole bunch of skittish and penny-pinching consumers -- and trying to figure out how to get them to purchase gifts online.

No matter how much the analysts say it is not so, the expectations and forecasts for 2001 holiday revenues reflect a weak economy and the aftermath of September 11th. However, most e-tailers are still counting on the annual influx of cash.

"To combat sluggish consumer spending, online retailers will be forced to come up with innovative approaches to getting customers," Yankee Group analyst Paul Ritter told the E-Commerce Times. "In many cases, those tactics will prove too costly for many retailers already operating on slim margins."

Free shipping, credit lines, multichannel fulfillment, and other frugal promotions are likely to resonate with cost-conscious consumers, analysts said.

Ship Shape

According to Forrester Research (Nasdaq: FORR), this year's online holiday revenues will be about US$11 billion, 10 percent more than last year.

"People are going to be buying gifts for more people with the same budget," Forrester analyst James Crawford told the E-Commerce Times. "So it's smaller basket sizes and more transactions to make up the holiday volume."

To capture more of those little baskets, many e-tailers are slashing shipping fees to appeal to budget-wary customers.

Open Season

For example, Amazon.com (Nasdaq: AMZN) is waiving shipping charges on selected items and on purchases of $99 or more. Likewise, Barnesandnoble.com (Nasdaq: BNBN) promises free shipping to customers who order two or more items online.

Discount e-tailer Overstock.com is also offering free shipping -- in its case, to first-time buyers. However, the site plans to rely mostly on word-of-mouth recommendations to attract its share of the holiday shopping crowd, Overstock.com CEO Patrick Byrne told the E-Commerce Times.

Forrester's Crawford said that although "free shipping will help overcome one barrier for some shoppers," e-tailers have to make sure to follow through on delivery.

"If you miss promised delivery dates around the holidays, it is the kiss of death for an e-tailer's reputation," Crawford said.

Credit as Lure

In addition to free shipping, some e-tailers are tackling spending barriers with credit lines and delayed payment schedules.

Amazon recently released its virtual credit card, giving buyers the option to pay for their purchases at a later date.

As a holiday hook, Amazon will entice its credit-account customers with three months of no payments and interest-free holiday shopping on orders over $200 placed through January 31st.

"The ability to postpone the repayment of debt incurred over the holidays until some time during the next quarter will resonate loudly with many consumers," said Yankee Group's Ritter. "If Amazon is able to transfer the credit risk to Citibank, then it may be one of the prime beneficiaries of online (holiday) spending."

E-Mail Bait

Multichannel retailer The Spiegel Group (Nasdaq: SPGLA) has offered three-month delayed billing on Spiegel.com and in its catalogs for all of 2001, and will promote the feature with a holiday e-mail campaign.

"[We] will conduct targeted promotions, based on past purchasing history or targeting new customers specifically," Spiegel spokesperson Allison Scherer told the E-Commerce Times. "E-mail promotions will focus on easy returns, Christmas guaranteed delivery, [and] delayed billing."

Similarly, Spiegel-owned clothing retailer Eddie Bauer will rely on targeted e-mails and banner advertising to promote new online shopping tools, such as a gift finder and wish list, Scherer said.

Swimming with Channels

Like other multichannel retailers, Spiegel will likely work hard to leverage its catalog and its brick-and-mortar Eddie Bauer stores to serve customers this season.

Indeed, some retailers are seeing 9 or 10 times more revenue from customers who shop via three channels than from shoppers who buy through just a single channel, said Ritter.

"Spiegel communicates with its customers via catalog and will follow up with an e-mail that reinforces the offer within the catalog, and visa-versa," said Scherer.

Come and Get It

Other retailers will promote offline fulfillment channels to cut costs and to accommodate surging customer demand for in-store product pickups.

To tap into this valuable hybrid customer base, Toys 'R' Us will offer gift wrapping to entice online gift givers to select a nearby store where recipients can pick up their presents.

Retailers who offer in-store pickups will win holiday shoppers over, suggested Crawford.

"Not only can customers get the items the same day and without shipping cost, but the retailer can leverage their brick-and-mortar fulfillment channel even more heavily," the analyst said.