Chill in the air for Web stores

By The Associated Press - 11/29/2008

For more than a decade, online retailers could count on big growth no matter the economic climate. But this holiday season, the e-commerce sector is at risk of its first slowdown since the Web was invented.

As bricks-and-mortar stores bemoan this season's declining foot traffic, their Internet counterparts also are feeling the pain in ways they haven't before.

Online retail spending fell 4 percent during the first 23 days of November from the same period last year, the industry's first-ever drop, market research firm ComScore Inc. said this week. Shoppers shelled out $8.2 billion at U.S. Web stores, down from $8.5 billion last year.

"There's never been a negative blip like this," said Andrew Lipsman, a ComScore senior analyst. "This is really new territory for e-commerce." Whereas the Friday after Thanksgiving, known as Black Friday, is the crucial date for traditional shops, the following Monday, know as Cyber Monday, kicks off the online holiday-shopping season. That's when buyers tend to take advantage of high-speed Internet connections at their workplaces to cross a few items off their shopping lists. Although online sales still account for less than 9 percent of overall retail sales, they had been a fast-growing channel.

This year, industry watchers are predicting that economic woes will hit e-commerce hard.

ComScore forecast flat growth this holiday for online spending, compared with a 19 percent increase last holiday season and 9 percent growth between January and October this year.

Nielsen Online, another market research firm, last week predicted that online spending would grow "at a single-digit rate, representing the smallest increase we've seen since the online commerce market was born." "Online retailers have been resilient to the current economy, but they're not immune," said Ellen Davis, spokeswoman for Shop.org, a division of the National Retail Federation in Washington.

Hardest hit will be luxury retailers, including sites that sell high-end jewelry and watches, Lipsman said. Merchants likely to best weather the storm are large companies that can take advantage of scale to offer lower prices, he said. Those include Amazon.com Inc., Wal-Mart Stores Inc. and Barnes & Noble Inc. Sites that specialize in sports and fitness products and video games also are holding up well, he said.

There is a silver lining to the storm clouds — the economy is driving more shoppers online, where it's easier to compare prices and scour for discounts, Davis said.

Traffic to coupon sites, for example, jumped 33 percent in October compared with October 2007, according to ComScore.

Retailers have responded with steeper discounts, specials and offers of free shipping to persuade reluctant consumers.

Close to 84 percent of online merchants plan to offer a promotional discount of some sort on Cyber Monday, up from 72 percent last year, according to a survey by Shop.org. Nearly one-quarter said they planned to offer free shipping, and one-quarter said they would hold one-day sales.

That could explain why sales were down in November.

"It's likely that some budget-conscious consumers are planning to wait until later in the season, to take advantage of retailers' even more aggressive discounting," ComScore Chairman Gian Fulgoni said.