Although retail revenues were down overall during the 2001 holiday season and for the year, online retail saw double-digit growth. The e-tail holiday season saw growth in terms of both traffic and dollars spent.
Does that mean online shopping is recession-proof? Most analysts say no, and point to a number of reasons why e-tail is still expanding, although not at the exponential growth rates of seasons past.
With many brick-and-mortar retailers recently reportingsluggish holidays sales and high rates of merchandise returns, the impacton Internet sellers has been just as acute, if not quite as apparent, analysts said.
Moreover, industry analysts caution that a number of online marketers willbe reeling for months to come due to the economic downturn.
“Online retailers have been hit every bit as hard as, if not harder than, thetraditional retailers,” Jupiter MediaMetrix senior analyst Ken Cassar told the E-Commerce Times.”It’s just more evident among traditional retailers because many of them areshowing fairly stagnant growth rates.”
Despite the tough economic times, online shopping over the 2001 holidayseason did register incremental growth year over year. Research firms Jupiter Media Metrix and Harris Interactive have found that the post-Thanksgiving buying period in 2001 saw about a 15 percent jump over year 2000.
However, analysts warn that the increase may very well have masked thefinancial straits in which many Web merchants currently find themselves.
“We did see considerable impact in terms of the recession in online shopping, just as we saw in retail,” said Lori Iventosh-James, director of e-commerceresearch at HarrisInteractive. “But the difference is that traditional retail has beenaround for a long time, whereas online is still in the growth mode — although itcertainly is maturing.”
As a result, many e-commerce players, having ridden in on a strong andunsustainable economic tide, now find themselves awash in fiscal malaiseinstead of bathing in long-awaited millions.
“When you look at online retailers, though, they are taking bigger percentage hits to their business because of September 11th,” Cassar said.
The harsh reality of the situation has been all the more painful for thoseonline retailers whose goal of achieving profitability by the end of 2001seemed to be within reach prior to the financial conditions that tookhold during the fourth quarter.
“I’ve spoken with one retailer recently who was very close to becomingprofitable, and the business took such a big hit during September and earlyOctober that it basically killed them,” said Cassar. “At the end of the day,we’re probably going to find a lot of online retailers will be going out ofbusiness because the events of September 11th made an already difficultsituation more difficult.”
According to industry watchers, the primary driver of growth duringthe recent holiday season was the increase in the size of the online shopping population. Both the number of new online users and the increased likelihood that a given user would make an online purchase caused revenue to spike.
In terms of raw numbers, Jupiter has estimated that during the 2001 holidays33 percent of Internet users shopped via the Web, compared to 29 percent whodid so over the previous season. The research firm also found thatthe size of the online population by the end of 2001 was roughly 142million, a jump from the 125 million users online at the end of2000.
“The newer people coming online are moving to make a purchase online morequickly than they have in the past, and it’s just a mainstreaming ofe-commerce,” said Iventosh-James. “People are more familiar with itsince there’s a whole lot more communication about security and privacyissues.”
Despite the modest increases in online retail, analysts maintain that belt-tightening by consumers helped to offset the growth.
“I’d argue that if it weren’t for the weak economy, which was exacerbated by the events of September 11th, we may well have seen a 25 percent increasein holiday retail growth over the previous year,” said Cassar.
Similarly, Iventosh-James said her firm found in a number of surveysconducted throughout the holiday buying period that consumers did rein in their spending.
“There was definitely a portion of people who said somebody in my family hasbeen laid off or my salary has been cut, so I’m only buying necessities thisyear,” the analyst said. “That was more the mentality than it had been in thepast.”
Although the events of September 11th and their aftermath produced aneconomic anomaly, analysts assert that slowing e-commerce growth ratesare also the natural result of a sector whose population is reaching themarket saturation point.
“Now that growth rates have come down to earth, we’re starting to findthat the macroeconomics are increasingly visible,” said Cassar.
On the upside, however, Internet retailers that are able to spur the currentpool of online users to become consistent Web shoppers stand to reapconsiderable benefits.
“We know that 60 percent of all U.S. households are online now and amongpeople who have online access some 85 percent have made a purchase,” saidIventosh-James. “Given those factors, the potential is quite large.”
Riding the Storm
While finding ways to ride out the recession is a dauntingchallenge, there may be avenues for Internet sellers to explore withoutfalling by the wayside. For some, consolidation — either through mergers orbuyouts — may be the key.
“I suspect that we will see some fairly strong Internet retailers up forsale over the next couple of quarters,” said Cassar. “I think many of themwill be purchased by their traditional competitors, such as brick-and-mortaror catalog companies.”
On an operational level, another option is for retailers to target theirbusiness blueprints on niche consumer segments.
“Retailers that might have been conceived with fairly aggressive marketstrategies may realize that they’re never going to live up to what mighthave been the unrealistic hopes of a couple of years ago,” said Cassar.
“Instead, they’re going to go after smaller markets.”
Additionally, analysts advise brick-and-click retailers, as well as catalogcompanies with Web sites, to focus on devising strategies that help snaga larger percentage of a customer’s overall spending dollars.
“It’s a great opportunity for traditional retailers who have an onlinepresence and for catalogers,” said Iventosh-James, “because they can reallyunderstand their shoppers and figure out how to capture a much largerpercentage of their spending across all these different mediums.”
Looking ahead, Cassar believes that the greatest driver of e-commerce growthover the next five years will be from the growing percentage of Internetusers who conduct online transactions.
“The longer someone has been online, the more likely they are to buy onlineand the more likely they are to buy more products online,” he added. “Theone thing we can be confident of is that average online tenure will onlyincrease over time.”