Analysts see cheery holidays for online retailers

OUTLOOK

Rise in mainstream users to outweigh glitches of '98

September 26, 1999|By William Patalon III

ANALYSTS ARE dreaming of an e-Christmas. After last year's better-than-expected holiday season -- about $3 billion of goods were sold over the Internet, despite some well-publicized technology glitches on some Web sites -- forecasters say 1999 holiday sales could reach $5 billion to $10 billion. How's the season shaping up? What areas will be strong?

John Segrich

E-commerce analyst, CIBC World Markets, New York

The way we look at it, last year was a tremendous season for electronic commerce relative to all expectations. By all indications, this should be an even better year.

The big sites are becoming brand names, and it's no longer only the technophiles who are buying -- mainstream consumers also are using the sites. CDs, books, videos and toys, especially, promise to be very big items.

But this is a pivotal year in terms of the quality of the online experience -- particularly because of the lessons we learned last year.

Some e-tailers are offering services, such as electronic gift notifications, where you get a notice saying, `I've just bought you this,' so you log in, see what it is, and tell them when and where to deliver it. That's an incredibly powerful shopping experience.

eToys is offering a gift registry, in which kids can say, `These are the items I want' -- which is the ultimate Santa list. And you don't ever even have to go into a toy store -- they'll even take care of the wrapping and shipping.

These are the types of applications that will take e-commerce to the next level.

Michele Pelino

Senior analyst, Internet market strategy, the Yankee Group,

Boston

In general, the categories you are going to see that will be big are things like books and music, and obviously the bookings for travel reservations will be huge. Computer hardware and software will still be big categories this year.

Online shopping is still pretty much dominated by the `early adopters.' We estimate that only one-third of U.S. households are online right now, which leaves a lot of potential. As far as online sales in the e-tailing market in general, sales will reach $24.2 billion by the end of 1999, and will grow to $125.6 billion by the end of 2003.

Another thing you might want to consider are the challenges posed by sheer volume, the mass volume of customer traffic. Last year was a watershed event. For many, that was the first time they went online, during the holiday shopping season. That was important, but disappointing [due to the technical problems]. This year is even more important. The online retailers need to have the infrastructure in place to take care of the volume. Otherwise, it could be a real problem.

`Fulfillment' is really a big challenge. That's why many people are not happy with the online experience. In one study, 63 percent say returning items is too difficult, 66 percent said high shipping costs were an issue, and 33 percent said there's no one at home to receive the delivery.

There are other things, like not being comfortable about putting their credit-card number online. But I tend to think that's more talk. People are buying online. Security is an issue with them but in the long run it's fulfillment [of an order] that's the real challenge. If I have a positive experience during the Christmas season, the likelihood that I'll go back there is strong. If I have a negative experience, that's another story.

Liz Leonard

Senior analyst, Gomez

Advisors, Lincoln, Mass.

The total toy market online and offline worldwide is about $70 billion for 1999. The percent of the U.S. toy market that is online is not even 1 percent, in our best projection: $230 million for '99, of which $180 million will be sold during the holidays.

We're seeing dramatic growth [in toy sales] compared to last year -- about six times last year, in fact. Toys, like books, are commodity items. The consumer gains both price and convenience advantages by buying online.

The first [toy sellers] to be online embraced the technology and adopted what we like to call `special features' to make the customer experience as good as possible. They offer gift-wrapping and wish-list features, with the latter being close to a gift registry.

Since the beginning of 1999, we've seen tremendous interest in this category. Toysmart.com's major holdings were bought by Disney in August. In July, Amazon.com joined in [to sell toys], and they've just started. K-B kids.com was started in April.

An area of concern is fulfillment. Too many remember last year's fiascoes: the run on Furbies, customers not getting what they expected and perhaps what they were promised. They ordered Furbies for Christmas, and didn't get them until January.

I would say that the holiday season creates tremendous opportunities for developing `mindshare' among consumers if a site appeals to a consumer at holiday time, they may return.

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