Rosy Holiday for Online Merchants

Despite a recession, sagging consumer confidence and disappointing results from traditional retailers, online merchants beat analysts’ expectations by reporting solid sales for the holiday shopping season.

Online purchases of DVD players, leather jackets, George Foreman grills and other consumer items totaled $11.9 billion this Christmas, an 11% increase over 2000, according to forecasts from online market researcher Jupiter Media Metrix. Excluding the slumping travel sector--which is down 8% this year--online retail sales are up 15% this holiday, said Jupiter e-commerce analyst Jared Blank.

Other projections were even rosier. Nielsen/NetRatings, a market research firm based in Milpitas, Calif., is forecasting that sales from November and December could total as much as $17 billion, 43% higher than they were last holiday season. That would bring total online sales to about $63 billion for the year, accounting for 2% of the $3 trillion in total U.S. retail sales.

The growth in e-commerce is more modest than in years past. From 1999 to 2000, online holiday sales more than doubled, according to many estimates. But analysts said this year’s results were significant, considering that sales for traditional retailers were essentially flat.

In a sign of the increasing dominance of a handful of big players, some of the largest Web sites Wednesday reported surprisingly big gains in holiday shopping. Yahoo Inc. said visitors to its shopping sites spent $10.3 billion online in the fourth quarter, 86% more than last year. Shoppers visiting Microsoft Network spent $5.6 billion on the Internet during November and December, a 56% increase compared with the same period last year, according to estimates from Microsoft Corp.

Most e-tailers--including industry leaders Amazon.com Inc. and EBay Inc.--are still tallying their holiday results. But investors are expecting more positive news. They responded Wednesday by shopping for e-commerce stocks. Shares of Amazon rose $1.27 to $11.10 on Nasdaq, a 13% gain, for instance, and EBay shares jumped $2.53 to close at $66.34, up 4%, also on Nasdaq.

With the exception of EBay, most major online retailers are still losing money. But amid a generally dismal shopping season, the early results suggest that shoppers are continuing to embrace the Internet, even in a gloomy economy.

“Billions of dollars of transactions worldwide that get done offline will migrate online over the next several years,” said John Corcoran, a new-media analyst with CIBC World Markets in Boston. “All the fundamental trends are going in the right direction--number of users, the amount of time spent online, the functionality of the overall Internet, the speed at which we connect, the number of Web pages, the number of e-mails, the dollars spent online.”

In years past, convenience and selection were the main reasons shoppers were lured to the Internet. This year, two-thirds of online shoppers said low prices drew them to the Web, according to the ESpending Report, which was released in November by Goldman Sachs, Harris Interactive and Nielsen/NetRatings.

Some cost-conscious consumers logged on close to Thanksgiving and began filling online shopping carts. But they didn’t proceed to checkout until mid- to late-December as they scoured the Net for bargains and waited for prices to fall, said Lisa Strand, chief analyst for Nielsen/NetRatings.

“This year it was apparent that people held off,” Strand said. “People were filling their baskets but keeping them full until December.”

Amazon.com offered a last-minute shipping option that promised Christmas delivery for items purchased up until noon on Saturday. Nearly half of its last-minute orders were shipped to addresses other than the purchaser’s address, and about 60% of those orders were gift-wrapped--two indications that gift-givers were holding off on their final purchases, said Amazon.com spokesman Bill Curry.

Big retailers like Amazon.com and portal sites such asYahoo, MSN and AOL Time Warner Inc.’s America Online are expected to post some of the strongest holiday results because traffic is consolidating among a few top players in each e-commerce segment.

“A couple of leaders in each category will wind up really dominating,” Corcoran said. “The big emphasis is on trying to be a one-stop shopping solution. They say, ‘Come to us. We’ll help you hunt down bargains, find places to buy, and if you get gifts you don’t want, we’ll help you auction them off.’ They want to be the only place you have to go.”

But even some modest sites reported strong holiday results. RedEnvelope Inc., an online specialty gift retailer, said Wednesday that its customer base tripled this year to 750,000, compared with 250,000 last holiday season. The San Francisco company shipped about 250,000 packages in December, a 67% increase from last year.

Still, there’s no denying that holiday sales grew much more modestly than in previous years, when dot-coms were at their zenith. At least the slower growth this year gave e-tailers a much-needed breather, said Blank, the Jupiter analyst.

“In the past, they’ve had operational issues in terms of keeping goods in stock and getting them out on time,” he said. “This allowed them to prepare and to execute better.”