Shoppers Are Beating a Path to the Web

Online Christmas sales are surprising even the dot-coms

Curt Allen was pleasantly surprised when he visited earlier this month to check out a flash attachment he's hoping to buy. Moments after he typed in an e-mail question to customer service, a live representative responded. Getting such personal service impressed him. Now, Allen plans to do much of his Christmas shopping on the Internet. "You don't pay tax, and you don't have to drag yourself to the mall," he says. "You're really making out like a bandit."

Allen has plenty of company this year. In contrast to sluggish, single-digit sales growth at many traditional retailers, online sales hit a record $1.5 billion for the week ending Dec. 2, putting fourth-quarter online sales on track to hit $10 billion, 12% above last year's total according to market researcher comScore Networks Inc.

Indeed, it's shaping up to be a pretty good year online. Market researcher BizRate, which tracks 2,000 e-commerce sites, forecasts a 31% increase in online sales this year--for a total of $33.3 billion. Says AOL Time Warner (AOL ) Co-Chief Operating Officer Robert W. Pittman: "The economy is bad, but when you look at the statistics for people shopping online this year, Internet retailing has not slowed down at all."

Of course, e-tailing remains a tiny portion of overall retail sales: just 2% this year. And sales growth has slowed from previous years. Still, the trend bodes well. Why? Analysts say Web shopping is becoming more mainstream. Nearly one-third of U.S. adults shop online, according to market researcher Nielsen//NetRatings. Although the demographics are still skewed toward high-income and high-education brackets, 60% of this year's online shoppers are women, up from 39% two years ago.

That's cause for a huge sigh of relief, if not outright celebration, among big-name e-tailers. Inc. (AMZN ), the leading online store, said that in the three days after Thanksgiving it sold 700,000 items more than it did during the same period last year. Toys `R' Us (TOY ), too, got a boost from its prominent placement on's Web site. reported in November a 70% increase over last year's fiscal third-quarter sales, to $39 million. EBay Inc. (EBAY ), the auction site, may do best of all during the holidays. On Dec. 11, W.R. Hambrecht reported that eBay was on track to beat fourth-quarter estimates for revenue of $209.1 million--a 55% increase over last year. EBay stock is trading at about $70 a share, up from a low of $26 last January.

USER-FRIENDLY. It helps that many e-tailers are making the shopping experience more friendly. According to a November survey by Goldman Sachs, Harris Interactive, and Nielsen//NetRatings, customer satisfaction with online shopping increased 17% in the past year. Most sites are now doing a much better job at the really basic stuff: Toys `R' Us Inc., for example, has improved the search process. The company used to offer categories of toys for children age 2 to 4. Now, it breaks them out year by year to narrow down the selection and speed up the search. has also made its site easier to shop, with a better search function and a checkout that requires fewer clicks.

With customers happier, e-tailers have, in many cases, been able to dispense with their usual sales promotions., the online outlet for Kmart Corp. (KM ), offers free shipping on only a handful of items. Says CEO Richard Blunck: "I am more than happy to let the guy who's hell bent on getting free shipping go to another site." Even with fewer incentives, has enjoyed a 45% jump in sales this holiday season.

Will a healthier business climate spruce up the earnings of the long-maligned e-tailing sector? Analysts point out that companies such as Amazon are having some success getting their costs in line, thanks to the cutbacks on free shipping and other freebies from the go-go years. Few, however, are yet ready to predict when these e-tailers will make a profit. Still, if online shoppers keep clicking that "buy" button, e-tailers will have not only a merry Christmas but a better New Year.

By Jeanette Brown, with Heather Green, in New York, and with Wendy Zellner in Dallas

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