Online Holiday Sales Shrink for the First Time Ever

Online retail saw a 3 percent year-over-year drop in sales between Nov. 1 and Dec. 23, according to research firm comScore, as economic hardships combined with a calendar that shortened consumers’ usual buying period.

The decline marked the first dip in online sales since comScore began tracking the figures in 2001. One year ago, online retailers brought in a combined US$26.3 million, versus $25.537 million in 2008.

“The combination of having five fewer shopping days between Thanksgiving and Christmas and the severe economic headwinds faced by consumers has made this a really tough season for retailers, both offline and online,” explained Gian Fulgoni, chairman comScore.

Holiday Drop

Consumers spent less even during a period that saw “some of the most aggressive discounting in history,” according to Rob Enderle, principal analyst at The Enderle Group.

“This discounting — in many cases well below the cost of the goods to the retailer — has chewed up margins,” he told the E-Commerce Times.

Despite the lower holiday sales, online retailers have in their favor a business model that requires little overhead in terms of stocked merchandise.

“Unlike brick and mortar companies, online retailers often don’t carry much inventory and so didn’t have to discount as heavily as the brick and mortar companies, suggesting the distributors and manufacturers may have taken most of the pain for this,” he said. “This ability to operate with little or no inventory may allow more of them to survive than their brick and mortar cousins.”

However, those that did carry large inventories will be in as much trouble as their traditional counterparts. Online retailers tend to have lower reserves, so while Enderle expects a higher percentage to survive, he said they will still have their ranks thinned.

Lemonade From Lemons

As certain major retailers verge on bankruptcy due to slow sales, the present situation could actually be a boon for some online retailers, according to Enderle.

The closing of KB Toys and Linens & Things, as well as Circuit City’s bankruptcy, may have helped, he said. “People tend to want to see what they will purchase, but if you are concerned that retailers will go under, you are probably more likely to use an online retailer because, relatively, it lowers the risk of buying this way. So I think these closings got people who otherwise might have not purchased online to do so, and thus helped prop up this channel,” he pointed out.

Consumer concern about the relative longevity of smaller online retailers was likely a factor in Amazon.com recording its “best ever” holiday season in 2008. The mega-e-tailer said it sold more than 6.3 million items globally on Dec. 15, its peak day for sales. That was roughly 9 million more items than the company sold on Dec. 10, its peak shopping day in 2007.

“Amazon is the most trusted of online retailers, and people were nervous about which companies would be around in the new year. Amazon has also done the best job of ensuring loyalty and had one of the hottest-selling, exclusive products, the Kindle, all of which came together to drive traffic to the site. They out-executed the market and this execution paid off,” Enderle concluded

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