Online Retailers Expecting Double-Digit Increase

Their numbers may not jibe but two prominent research firms agree on one thing: the holidays will be merry for online retailers.

Forrester Research and JupiterResearch released their holiday sales projections for online retailers this week and both predicted double-digit increases for the period.

Due to variances in the methods used to calculate their numbers, the duo's figures differed.

Forrester forecasted holiday sales to reach US$18 billion, a 25 percent increase over last year.

Jupiter tagged future sales at $26 billion, an 18 percent increase from its sales figures of a year ago.

Good, Not Great

While the numbers may vary, the bottom line doesn't. Online retailers will be reaping increases much better than the industry as a whole, which is expected to see a modest rise in holiday sales of five percent.

Still, online sales represent only a small sliver -- seven to eight percent -- of the $435 billion retail pie.

"This is shaping up as a good -- not great -- holiday season," Forrester Vice President and Research Director Carrie A. Johnson said in a statement.

Welcome to the Mainstream

"The mainstreaming of the Web means that if offline retail sales suffer, online sales do as well," Johnson added. "The average online consumer is no longer insulated from broader economic concerns such as volatile energy prices."

Those sentiments were shared by JupiterResearch Senior Vice President of Research David Schatsky.

"While the Internet continues its maturation as an online shopping channel," he said in a statement, "external macroeconomic events may have a greater impact on sales growth, potentially even more significantly at the critical holiday season."

Nevertheless, he predicted total online sales growth for this year would be almost 20 percent higher than last, $79 billion compared to $66 billion in 2004.

A Maturing Channel

Maturation is an important factor on the growth of online sales, observed Kurt Peters, editor of Internet Retailer in Chicago.

"When consumers become more comfortable shopping online, they buy more," he told the E-Commerce Times. "That's been the experience throughout most of the history of online shopping.

"Growth of households online is slowing down, so what we're really seeing is people doing more online."

Fear and Loathing on Web

But will they continue to do more online? A study released last week suggests they may not.

According to the study conducted by Princeton Survey Research Associates International for Consumer Reports Web Watch, about 30 percent of American Internet users say they're reducing their Web purchases, and nearly a quarter have cut the cord entirely for fear of phishing scams that steal personal information.

Peters, however, discounted those findings. "I think the fears of people online have been overblown," he said.

"There has always been a significant portion of people who won't shop online because they're afraid to put personal information into a retail order form," he explained. "But the desire for convenience -- the ease of shopping online -- is stronger than the concerns on the part of some consumers."

According to Scott Krugman, a spokesperson for Shop.org in Washington, D.C., the survey results appear to be askew with reality.

"More and more people are shopping online," he told the E-Commerce Times, "so clearly there's a disconnect between those survey results and what's actually happening."

Slipping Margins

While online sales will be brisk, Jupiter noted, cybermerchants will see their margins erode.

"Channel adoption is driving the projected increase in online retail sales during the upcoming holiday season and macroeconomics are driving the reduced margins for the retailers," Jupiter Analyst Patti Freeman Evans said in a statement.

"While the expected sales increase for retailers is significant," she continued, "consumers are feeling pinched by expensive energy prices."

Free Shipping Entices

"They will respond to free shipping offers," she added, "but these offers will not be enough to encourage them to spend more than last year."

According to the Jupiter study, 56 percent of consumers who intend to purchase goods online cited free shipping as more important this year than last because of high fuel and gas prices.

Free shipping, with conditions, will continue to be popular with online merchants this year, with 79 percent of all Net shops offering the perk to consumers, Krugman noted.