Online Sales Strong for Holiday Season

Online holiday sales, helped by free shipping offers, are turning out to be robust, according to several preliminary reports released Monday, providing a bright spot in an otherwise mediocre shopping season.

The double-digit percentage increases at online retailers far outstripped the slim increases estimated for sales in stores. After a better-than expected surge after Thanksgiving, sales at stores were disappointing throughout the season, despite aggressive discounting.

"Compared to an anemic holiday season (at stores,) this was a terrific holiday season for online retailers," said Ken Cassar, senior analyst at Jupiter Research. But Cassar warned that given that free shipping was an important driver of online sales, he is worried about companies' profits. He added that it will be hard for online retailers to wean themselves away from free shipping and handling, and consequently, they may have to increase prices as an alternative.

"Retailers that want to offer free shipping will have to make a difficult choice between increases in sales and in profit margins." Jupiter Research announced Monday that e-commerce sales will exceed its original forecast of $13.1 billion, which would represent growth of more than 17 percent from the year-ago period, based on early reports from online retailers.

Now, Jupiter Research anticipates a 20 percent to 24 percent gain for the holiday 2002 season, which was from Nov. 1 through Dec. 31. It is expected to release final numbers in March. A separate report from Nielsen/NetRatings, Goldman Sachs and Harris Interactive said that online spending jumped more than 24 percent to $13.7 billion, from Nov. 2 through Dec. 27, up from $11 billion in the year-ago period. That was in line with projections for sales increases in the low 20 percent range.

The company based its data on surveys with a total of 9,000 online shoppers during the holiday period. ComScore Networks Inc., which captures buying activity from a cross section of 1.5 million Internet users, said that online sales were up 20 percent to anywhere from $19.7 billion to $19.8 billion during the Nov. 1 to Dec. 31 period, according to preliminary reports. According to BizRate.com's final holiday revenue tally, which was released late last month, online sales were up 23 percent to $7.92 billion from Nov. 25 through Dec. 25, compared with the comparable year-ago period. The shopping comparison site, which also tracks consumer spending across 2,000 Web sites, had forecast a 24 percent gain.

All holiday sales figures exclude the travel category. This holiday season, 140 retailers offered free shipping deals, about 30 percent more than last year, according to BizRate.com. BizRate.com also found that 39 percent of holiday online purchases were influenced by free shipping deals.
Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd., expects that sales at stores open at least a year, known as same-store sales, will be up only 1.5 percent for the November and December period. That would be the weakest increase since the same-store index started tracking the figures in 1970.

Same-store sales are considered the best indicator of a retailer's health. The bulk of brick and mortar retailers will be reporting their December sales on Thursday.

In the online world, analysts are closely monitoring Amazon.com, the bellwether of online retailing, to see whether its aggressive free shipping and discounting will affect gross profit margins in the fourth quarter. The online seller of books, apparel, DVDs and other items has projected net sales in the period to be between $1.3 billion and $1.4 billion, a 19 to 28 percent growth from the year ago period. The company expects a pro forma operating profit of between $70 million and $95 million. Amazon.com is slated to report fourth-quarter results on Jan. 23. Meanwhile, Bluenile.com, a privately held online jewelry site, said that it expects fourth-quarter sales to be up 78 percent, well exceeding its projections for growth in the 40 percent to 50 percent range. "This was a breakout year for online jewelry," said John Baird, a company spokesman.

Not everyone was pleased with results. Online company 1-800 Flowers.com said Monday that it anticipates achieving earnings of 11 cents per share in its fiscal second quarter, which includes the holiday period and ended Dec. 29. That's below analysts' projections for a 15 cents per share.

The company also expects to generate sales of $197 million, below the anticipated $203 million. However, Jim McCann, the company's chief executive, said that profit margins improved to 45 percent from 43 percent in the year-ago period.

McCann acknowledged that 1-800 Flowers should have done more aggressive marketing, including more advertising, particularly with its business clients, to increase sales.

"On a relative basis, we did very well, but we would have liked to have done better," said McCann.

Publicly traded retailer Bluefly.com, which sells discounted designer apparel, expects fourth-quarter sales to be in line with the more than 20 percent growth expected, but Pat Barry, chief financial officer, said that the company's goal of close to breaking even for the period will be "a challenge."

While sales at Bluefly.com in November and December were strong, revenues were slow in October, stymied by new technology installed on its Web site, Barry said.

Source: The Associated Press, Newsbytes