October 28, 2004

Study: Holiday Online Sales to Jump 20 Percent

By Evan Schuman, eWEEK

Forrester Research is projecting that online holiday sales this year will hit $13.2 billion, which represents a 20 percent increase compared with last year. That's great when compared with a projected brick-and-mortar sales percentage increase of 4.5 percent for the same period, but much less so when compared with last year's online retail growth of 31 percent compared with 2002.

Much of the slowed growth can be attributed to a simple statistical reality. Just a handful of years ago, e-commerce sales were miniscule, so when they started to climb, the initial statistical increases were huge because they were starting from such a low point. Now that online sales are becoming a respectable $13 billion, they won't be able to sustain double-digit growth for very long.

Then again, online sales are still a footnote to total retail sales, which the National Retail Federation projects will be about $220 billion this holiday season.

Forrester's analysis also suggests that, as e-commerce becomes more commonplace, it's growth rate will more closely mirror that of its brick-and-mortar sibling. "Online is going to mimic overall economic conditions," said Sharyn Leaver, a Forrester vice president and research director. "It's pretty much as expected. There's really nothing super surprising."

One point in the Forrester report, though, was somewhat surprising. It suggests that fears about online success cannibalizing brick-and-mortar sales may take hold of executive's ears this year and force them to deliberately back off of encouraging online sales.

"As the Web gets more mainstream, online sales have suffered from the same tepid sales as offline," the report said. "Many online retailers will be forced to dial back promotions and push shoppers to stores, the channel in most danger of missing holiday sales forecasts."

Leaver, who edited that report, said that despite all of the multichannel talk that retailers give these days, many retail execs still will do what they must to protect in-store sales. "Overall, the store sales are really more important to the retailer than online," Leaver said. "We expect that retailers will not be pushing, pushing, pushing" online promotions.

The retail analyst said she was not suggesting that retailers would choke off marketing funds for online sites as much as encourage branding promotions ("Buy this great stuff here at Sears, online or at your neighborhood store") instead of Web-only promotions ("Click now to buy online and we'll take an extra 30 percent off.")

"What they really don't want to do is disincent consumers from going into the store," Leaver said.

Part of the problem is that the Web has evolved into much more than a sales channel. It's the store's virtual front door, and it's the way consumers research. The Web site must represent the entire retail operation and not merely online, so online managers must be encouraged to think of other company units.

That may be true, but when division sales teams are clawing over each other for those last few holiday sales, it's hard to act in the holiday spirit.