Holiday Online Sales May Top $10 Billion
As the dust settles in the aftermath of the holiday shopping season, sales by online retailers appear to have hit the high end of projections, with a study of Internet merchants released Wednesday estimating sales of more than $10 billion, more than triple the results in the same period last year.
The figures from Boston Consulting Group come despite mounting reports of failures by Internet retailers and concerns that the rate of merchandise returned to online merchants will double.
But analysts said returns, if handled efficiently, offer online merchants an opportunity to win future customers.
Boston Consulting Group had previously estimated that online sales would total $9 billion for Nov. 1-Dec. 31. But other prognosticators predicted Internet sales as high as $12 billion, up from $3 billion in the period in 1998.
Shop.org, a trade organization that commissioned the survey, said overall online sales for 1999 are expected to reach $30 billion to $40 billion, up from $14.9 billion in 1998. Shop.org represents 320 online retailers.
“Consumers were much more comfortable doing their gift shopping online and were attracted by the range of seasonal offerings from online retailers,” said David Pecaut, senior vice president of Boston Consulting. “We expect this growth curve to carry over into the new year.”
Despite the upbeat news, there are signs of a shakeout among Internet retailers as weaker firms cut staff and consider sales.
Value America Inc., an online seller of computers and office supplies, said Wednesday that it will lay off nearly half of its more than 600 employees and explore a possible sale because revenue is expected to be as much as 9% below forecasts. The company, which also announced the resignation of founders Craig Winn and Rex Scatena, blamed delays in delivering products to customers and problems switching to a new computer system. Investors include billionaire Paul Allen and FDX Corp. Chairman Frederick Smith.
Boston Consulting Group’s survey also showed that consumers are buying bigger-ticket items on the Internet than in the past. The average online purchase has grown 8% to $60, the survey showed. The study covered 30 Web retailers of apparel, books and music, home and garden products, specialty foods, electronic goods and other gift-related items.
Analysts said that high return rates are fallout from increased sales of big-ticket items. And e-tailers have eased their return policies in an effort to be consumer-friendly.
Typically, a relatively low 5% of products are returned to online retailers, but BizRate.com Inc. said that during the holiday period return rates have doubled. Handlingreturns can cost online retailers up to four times what it takes to process a sale, said Paul Bates, vice president of information products at BizRate.com.
Even so, returns during the holiday period could mean an opportunity to win new customers because many people sending back items are gift recipients, not those who purchased the product, an analyst said.
“If someone received a sweater from Gap.com but has never bought from Gap.com themselves and they go to the Web site to figure out how to return it, they might enjoy that experience enough to become a customer,” said Mike May, an e-commerce analyst with Jupiter Communications.
A double-digit return rate would be on par with traditional retailers, said William Dean, president of W.A. Dean & Associates, which has surveyed the topic in conjunction with the Direct Marketing Assn. He said apparel returns to catalog companies run from 10% for basic goods to between 35% and 40% for high-end clothing.
The Internet has also opened alternatives to returning gifts. At least two firms, Pasadena-based Swap.com Inc. and Intellibarter.com of Santa Cruz launched sites in the last week to cater to those who want to exchange gifts they received during the holidays.
Also, online auctions such as those on EBay Inc., Amazon.com and Yahoo Inc. have become popular for selling unwanted items.
As shoppers become more accustomed to buying online, industry watchers expect that return rates will drop below even those of catalog and retail stores.
“First, it’s just a pain in the neck to return things online, and that alone should suppress returns,” May said. “Also, there’s far more information available at the time of purchase online than offline, making it easier to purchase the right product the first time around.”
