Holiday E-Commerce Growth Slowing

Holiday e-commerce this year is expected to rise just 66 percent over 1999, or barely half the growth rate of the year before, according to a report released Monday by Jupiter Communications (Nasdaq: JPTR).

Jupiter, an Internet commerce research firm, projects sales will reach a total of about $11.6 billion (US$) this holiday season, compared to $7 billion in sales in November and December of 1999.

Holiday sales in 1999 increased by 126 percent from 1998's total of $3.1 billion.

Wall Street Asks, 'Where's the Profit?'

Among the reasons cited in the report for this year's slower growth are a tighter capital market on Wall Street -- where investors have become more serious about demanding profitability -- and the well-publicized delivery crises that plagued many retail e-commerce sites in 1999.

Additionally, the very size of the e-commerce industry suggests that astronomical percentage gains in sales will be continually tougher to achieve -- after all, the bigger the base, the less impact further growth will have.

As part of this maturing of the industry, Jupiter's analysts expect most of the gains to be accrued by big retailers -- especially since many smaller sites have either folded or shown serious weakness in recent months.

Furthermore, the report suggests that e-commerce sites would do best to focus on marketing to their core customers, or "natural markets," instead of blowing their budgets on expensive, high-profile ad campaigns, which are often a hit-or-miss proposition in terms of results.

Consumers Still Confident

Perhaps the biggest hurdle for e-commerce sites this holiday season will be to avoid the pitfalls and bad press that came with last year's well-publicized delivery problems. Toysrus.com and several other Web retailers were recently fined by the U.S. Federal Trade Commission (FTC) for their failure to notify customers that their orders would not make it under the tree in time for Christmas morning.

Still, according to Jupiter, the convenience of Internet shopping is still expected to lure many consumers, including first-time Web buyers.

Earlier Study More Optimistic

The figures reported by Jupiter Communications suggested a smaller increase for holiday e-commerce than the numbers reported earlier this month by Gartner Group (NYSE: IT).

Gartner projects worldwide e-commerce spending for the fourth quarter of 2000 -- including money spent on travel -- to hit $19.5 billion, up 85 percent from last year's $10.5 billion.

The research firm also suggested that consumers are willing to give the Internet a chance this year as a place to do their shopping. However, to keep customers, sites will have to make their sites easy to navigate while cutting shipping fees and providing customers with up-to-date information on their orders.