Online retailers enter a pivotal season

Online, it's beginning to look a lot like Christmas.

Despite last year's holiday delivery problems and this year's brutal dotcom shakeout, surviving retail Web sites are girding for a banner season. In fact, they're desperately counting on it. Without big sales increases and smooth delivery, many Web sites may not be able to convince investors that they're moving to profitability fast enough.

So listen up, consumers. Web service should be great this year because online retailers have a great deal to prove.

"Last year was a wake-up call for a lot of companies," says Hans Peter Brondmo, author of "The Eng@ged Customer," a new book on Internet direct marketing. Web retailers are telling him: "This is the season where we're going to make it or break it," he says.

So far, the prospects look good if slightly delayed.

Jupiter Research, an Internet market-research firm, estimates some 35 million Americans will buy online this Christmas season compared with 20 million last year. For Web retailers, that traffic should add up to $11.6 billion in December sales, Jupiter says, up from $7 billion a year ago.

"Despite all the doom and gloom we're hearing out there about online retailers closing their doors, there's still going to be a very large holiday season," says Scot Melland, president of Vcommerce Corp., a Stamford, Conn., company that designs and runs order-fulfillment services for online companies.

Even if consumers don't buy anything online, Web sites will serve a pivotal shopping role. "The Internet is still an extremely powerful tool even for those who are not comfortable purchasing online," says Lori Iventosch-James, director of e-commerce research for Harris Interactive, a market-research company based in Rochester, N.Y.

According to a new survey by Harris Interactive and the Boston Consulting Group, just under half of Internet users who aren't going to buy online still expect to use the Web to research products, prices, and brands.

The Internet Christmas season is starting a little later this year. In 1999, consumers ripped off their Halloween masks and immediately began shopping online. In the first week of November last year, traffic at consumer-electronics sites jumped 56 percent and toys and games sites spiked 47 percent compared with the prior week, according to Nielsen//Net-Ratings, an Internet-audience measurement and analysis service in Milpitas, Calif. This year, the first week in November saw only a 16 percent jump over the previous week in consumer electronics and virtually no spike in toys and games.

One reason is this year's dotcom shakeout. Three online toy companies - Toysmart.com, ToyTime.com, and Viacom's RedRocket.com - have failed. Others, such as eToys, have seen their stock prices nosedive. With less competition and far less capital to work with, online retailers have slashed or completely eliminated their advertising.

The fallout from the presidential election has also distracted people, says Lisa Strand, senior analyst of e-commerce strategies for Nielsen//NetRatings. "The traffic will come and there's more people online. It's just that everything is slightly delayed this year."

Web retailers are paying special attention to customer service. Last year, many online companies set up Web sites that couldn't always handle the crush of orders. As a result, more than half of online purchasers ran into a roadblock, according to the survey by the Boston Consulting Group and Harris Interactive. Internet slowdowns and crashes accounted for many of those failures. But out-of-stock problems made up more than a quarter of the complaints. And, most troubling of all, 17 percent of online shoppers who had a problem said the wrong item was delivered or the right item arrived late, damaged, or not at all.

"There was too much duct tape in the back room," says Mr. Brondmo.

As a result, the industry has some fence-mending to do. Two-thirds of Web users expect better service in a traditional store than online, according to an Online Retail Partners survey. Surprisingly, those with the most confidence in traditional stores are 18- to 24-year-olds.

But last year's online shoppers appear ready to try again. According to the Boston Consulting Group and Harris Interactive survey, 96 percent of them plan to use the Internet to buy again this Christmas. And three-quarters of those who experienced a purchase failure last year said they might give the same site another chance.

Web sites are ready. eToys has added two new distribution centers. Toys "R" Us has joined forces with Amazon.com to take advantage of its Web experience and shipping capability. Other sites are outsourcing their order-fulfillment operations to specialists such as Vcommerce, Online Retail Partners, and UPS, which is serving half a dozen companies this year and plans to roll out the program nationwide.

"The opportunity has not changed," says Tim Harrington, who heads sporting-goods retailer Fogdog.com, which began round-the-clock telephone support for customers late last month. "The Internet is going to continue to be a significant channel for commerce."

(c) Copyright 2000. The Christian Science Publishing Society