Retailers feel impact of Internet

Holiday buying surge taken as turning point in sales strategies

Marketing

January 18, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

NEW YORK -- After scrambling for much of last year to prepare for what promised to be the first big holiday season for e-commerce, retailers got the swell of shoppers they'd expected -- and then some.

What they didn't get, for the most part, were the large-scale customer service problems some had feared.

Retailers attending the National Retail Federation's annual conference here looked back yesterday at the season that may well be a turning point for the industry. A big jump in online shopping indicated that the Internet will play a major role in a future where the customer -- not the merchant -- is in the driver's seat, say retailers and experts who track the industry.

Forrester Research, a technology research firm, initially forecast sales of $4 billion for the period between Thanksgiving and New Year's, but has upped its estimate to $5 billion. Though that represents 3 percent of total holiday sales, which rose 6.9 percent in 1999 to $185 billion, some analysts expect Internet sales to eventually account for up to 25 percent of consumer sales.

The season brought some glitches as well as major faux pas for two national chains. Toys `R' Us left customers fuming when the retailer announced before Christmas that it would be unable to fill some orders by Dec. 25. And Land's End shifted some of its catalog merchandise to its Internet site, but failed to carry through with marketing to alert shoppers, said David M. Cooperstein, Forrester research director for e-commerce.

Such experiences convinced the executives at Dayton Hudson Corp., parent of mass discounter Target, that they decided correctly to follow a strategy of "modest promotions" in launching 10 Web sites last year. "Don't over-promote yourself," said Brigid Bonner, vice president of e-commerce, technology and strategy.

Going that route minimized problems when Dayton Hudson discovered that sales tax was incorrectly calculated on some online purchases. The company corrected the problem after three days, Bonner said.

Warner Bros. Studio Stores found out too late that it was not set up to carry through with a promotion offering a free gift with an online purchase of Pokemon cards, said Marcia Tabler, the company's vice president of direct marketing. Again, the system glitch was quickly corrected, she said. For the first time in 1999, Warner Bros. allowed its customers to return merchandise to its stores, a process Tabler said has gone smoothly.

But most complaints stemmed from shoppers' own errors, and even they weren't that numerous, Cooperstein said.

"The big point is, with the exception of big mistakes by Toys `R' Us and Land's End, people understand how this works and will continue shopping on the Web," Cooperstein said. Retailers "see e-commerce as part of the holiday season, not separate."

J. C. Penney Co. Inc. and Service Merchandise Inc., whose store sales have been lagging, saw more growth in their online business than in their traditional venues, Cooperstein said.

Retailers said one of their biggest challenges will continue to be finding the best way to drive traffic to their sites. Over the holiday season, that came largely from more traditional forms of marketing, such as in-store promotions or circulars, Bonner said.

Others will turn to partnerships, and more linkups should be expected between purely online sellers and traditional chains, such as Rite Aid Corp.'s purchase last year of Drugstore.com, said Jonathan Morris, executive vice president of Bluefly.com Inc., an online seller of off-price apparel.

"There will be consolidation, but not motivated by the failure on the part of the dot.coms to make it work financially," Morris said. "E-commerce is a very different thing. You will start to see traditional retailers want to get into space, and it's not easy. It will be motivated by traditional retailers who will buy expertise developed by e-tailers."

The 1999 holiday season also showed retailers that the online customer is beginning to look a lot like customers that shop the stores. Half the online holiday shoppers bought online for the first time in 1999 and, unlike in the past, tended not to be predominantly high-income.

The more experienced buyers tended to buy computers and consumer electronics, while the less experienced bought books, music and apparel.

Internet shoppers spent an average $1,558 on total holiday expenses, compared with $1,148 in 1998, according to results released yesterday by American Express Co. The survey showed the number of consumers who bought gifts on the Internet during the 1999 season nearly tripled, from 6 percent in 1998 to 16 percent.

Retailers said they plan to use information on consumers' buying patterns to tailor the mix of merchandise to their customers, Tabler said.

"There's no reason when a customer comes on to a site that they can't have a personalized experience," Morris said. "We can create the personalized experience."

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