E-Tailers' Holiday Edge: Better Service

Online retailers are cleaning up this season by giving consumers maximum control over their shopping

It used to be that folks wouldn't shop online because they wanted to experience the special experience of a store during the holidays. How things have changed. This holiday season, people who wanted the best shopping experience went shopping online.

Because no matter how much stores dress up their windows or how well they train customer-service reps to be helpful and cheerful or how aggressively they price certain items, shoppers are looking for more. They're looking for control over the entire shopping experience. They want the ability to compare prices across a hundred stores in an instant, to check availability in real time, to watch a video with a product demonstration, to track down that special treasure they didn't even know they wanted. For all this and more, the Internet is proving the place to be.

"Folks are gaining mastery over the shopping experience online, whereas when they visit a store they find that they are understaffed and understocked—a situation they cannot control," says Lauren Freedman, president of the E-tailing Group, an e-commerce consultancy based in Chicago.

Online Sales Surge

Of course, online sales have been growing for years. But this year the contrast between sales on the Net and those in traditional stores is particularly stark. During the first 48 days of the holiday season, total online retail spending surged by 25%, to $20.65 billion, compared with the corresponding days in 2005, according to comScore Networks, which measures online retail spending and traffic. In contrast, overall retail sales are expected to increase by a mere 5% during the current holiday season.

Shoppers are finding that they can simply do much more in digital stores than traditional ones. Though Web sites for comparing prices or gathering coupons have been around for years, they're now getting more effective and easier to use. In addition, more and more sites are providing videos to give people a better understanding of the products they're considering. This year, 37% of all e-tailers offer videos, compared with 18% last year.

Online-only retailers, from Amazon (AMZN) and eBay (EBAY) to Blue Nile (NILE), are leading the way with these innovations. But plenty of traditional retailers are tuning up their own sites too, including Wal-Mart (WMT) and Home Depot (HD). "It is often easier, and more cost-effective, for retailers to make changes to their own Web sites, instead of tweaking offline marketing efforts," says Scott Silverman, executive director of Shop.org, the online arm of the retail trade group the National Retail Federation. "From expanding advertising efforts to increasing online promotions, many retailers have been making changes to their marketing plans all holiday season long."

Shoppers often start shopping online because they're looking for deals. Some 54% of customers say that they like to shop online to save time and money. And they're a tough pack of bargain hunters. According to the E-tailing Group, 44% of shoppers typically comparison-shop three sites before making a final purchase online. Shoppers end up swarming the sites that can provide the best deals: When Wal-Mart slashed prices on cameras and flat-screen TVs last month, Walmart.com saw a 64% surge in traffic, to 40.5 million visitors, from the previous month, according to ComScore.

But once shoppers find a good deal for a holiday gift, they're willing to spend. According to retail tracker Think Data, online shoppers average about two items per online holiday purchase, compared with an average of about 1.5 for the rest of the year.

Average purchase prices also increase about 25% during the holiday shopping season, to just under $60.

Have It Delivered…

One other factor that's helping online shopping this holiday: e-tailers are expanding their season. In previous years, many online retailers wouldn't guarantee delivery by Christmas unless orders were placed by Dec. 15. This year, many retailers extended the deadline to Monday, Dec. 18, when shoppers spent $525 million, a 28% increase from last year. Others were even more competitive— Williams-Sonoma (WSM), Pottery Barn, and Tiffany's (TIF) all pushed their deadlines back until Dec. 20. "The strategy of luring holiday shopping procrastinators with extended shipping guarantees paid off handsomely for online retailers," says Gian Fulgoni, chairman of comScore Networks.

That kind of customer control is something that most retailers can't even think about delivering in their traditional stores. But a few are trying. Take J.C. Penney (JCP). Shoppers who can't find the right color or size for an item can check availability by logging onto JCP.com from computers installed in J.C. Penney stores. They can make the purchase immediately and have it sent to their homes. That's one reason JCP.com's traffic grew 44% in November, to 16.8 million visitors. "JCP.com continues to be our fastest-growing channel," says Chief Financial Officer Bob Cavanaugh, at Penney's third-quarter conference call with analysts.

…Or Pick It Up

Retailers are increasingly allowing customers to buy online and pick up purchases in their stores. According to the National Retail Federation, 13.6 million consumers will try to beat the crowds by buying online and picking up items in a retail store this holiday season. "By purchasing items online and picking them up in a retail store, holiday procrastinators are able to partner convenience with instant gratification," says Shop.org's Silverman.

According to Forrester Research (FORR), online retailers with a "buy online, pick up in-store" feature say that an average of one-third of orders, or 31%, placed on their Web sites are picked up in the store. Many stores that offer this feature saw traffic soar. Last month, BestBuy.com's (BBY) traffic rose 66%, to 21.1 million visitors, and CircuitCity.com's (CC) traffic jumped 55%, to 15.7 million visitors. "People find good deals online and like to finish their purchase and then they don't mind picking those items up in stores," says Chad Herman, director of business development at Think Partnership (THK), an online marketing firm.

It's one more example of how customers are looking for more control over their shopping experience this holiday season.

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