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Posted on by Chief Marketer Staff

Once Bitten, Twice Buy? Online retailers vow to avoid the mistakes that plagued the 1999 holiday shopping season.

The dollar remains strong, shoppers are active, and the holidays are fast approaching. So why are so many online retailers scared they’ll end up with coal in their stockings this year?

Because during Christmas 1999 – when online shopping was supposed to have its coming-out party – many retailers dropped the ball. Having spent millions to convince consumers that e-commerce was a safe, easy alternative to pounding the pavement, many online retailers forgot about nitty-gritty essentials such as customer service and fulfillment.

According to a study from research firm Datamonitor, London, an estimated $6 billion in online sales was lost in 1999 due to poor customer service. Web vendors have long sold themselves as the convenient alternative to elbowing through crowded shopping malls, but e-stores realized they had to concentrate on the basics of the retail equation if they hoped to lure customers from brick-and-mortar outlets and – more importantly – keep them. Rather than blitz the public with advertising messages and throw specials at shoppers to drum up business, as they did in ’99 (often to great success), Web retailers need to put the emphasis on customer service this year. With Wall Street growing skittish about overly hyped but underperforming Internet stocks, Web retailers have less seed money for marketing programs and a greater need to satisfy the customers they’ve already attracted.

The blame didn’t rest solely with online-specific stores last year. In fact, some traditional retailers neglected the essentials as well, and consequently may have harmed brands that consumers already recognized and trusted. The most publicized debacle came at Toysrus.com, Paramus, NJ, which should have known what it takes to handle a surge in holiday volume. However, the site was unprepared to manage fulfillment during the week of Christmas, and ended up giving $100 gift certificates to the numerous customers whose orders didn’t arrive until after the holidays. That came after the company did a masterful job of driving customers to the site by tying the newly launched toysrus.com into all of its offline promotions.

Instead of building a better infrastructure from scratch for the 2000 holiday season, Toysrus.com has instead formed an alliance with Seattle-based Amazon.com for a co-branded operation in which Toys “R” Us supplies the toys and Amazon.com the online expertise.

Passing the First Test Other merchants have made changes as well. Research firm Resource Marketing, Columbus, OH, polled retailers this summer to find the improvements they had made. The firm shopped at the most popular online stores to emulate consumer behavior and gauge retailer response.

In determining a ranking of “Best of Web” sites that includes eToys, Lands’ End, Amazon.com, Beautyjungle.com, The Gap, and electronics store 800.com, Resource used such criteria as ease of navigation, breadth of selection, and turnaround time. “The change this year is that two multi-channel players [Lands’ End and The Gap] entered the top ranks,” says Karen Scholl, Resource’s associate editor of syndicated media. “Traditional retailers are starting to catch on, although they still aren’t doing it as well as online-only [sites].”

A Resource poll last holiday season found that six percent of online orders did not go through. During the summer follow-up, only one percent weren’t being shipped on time, indicating an improvement in fulfillment. However, Scholl cautions that the true test won’t come until retailers face the holiday crunch again.

Perhaps the biggest advantage for retailers is how mainstream e-commerce has become in just one year. “Last year, people said `What the hell’ and gave it a try,” said Ken Neibaur, vp-marketing at AltaVista, Palo Alto, CA, during his keynote speech at Holiday Survival 2000, a conference sponsored by the Association for Interactive Media (AIM) and held in New York City last summer. “However, the majority of shoppers spent less than $200, and most indicated they’ll buy less than 10 percent of their holiday gifts online.”

But the lines between online and offline shopping are blurring. “We expect 80 percent of retailers to soon have Web-based kiosks in their stores,” said Mike Petsky, ceo of research firm Winterberry Group, New York City, who also spoke at the conference.

Online vendors need to understand that for most holiday revelers the shopping component is more a ritual than a chore. “Last year, we made the argument that shopping offline was a hassle. But in reality, most people enjoy shopping offline,” said Lance Podell, ceo of online comparison shopping service DealTime.com, New York City.

Eyes On The Prize As one of the top-ranked Web vendors, Lands’ End, Dodgeville, WI, is refining its site rather than overhauling it. “We were already a direct marketer, so we didn’t really have the same problems that a lot of merchants experienced last year,” says spokesperson Andrea Stephenson. “Customer service is the key – we had UPS service that could ship right up through Christmas Eve. Among the tweaks implemented this year will be an enhanced “Personal Model” that enables all shoppers to input their size to see how outfits will look, and an expansion of the online inventory to feature 90 percent of the company’s catalog offerings.

One of the biggest changes at fashion outlet store BlueFly.com, New York City, was preparation. “We’ve been planning [for the 2000 holiday season] since Dec. 24, 1999,” says ceo Ken Seiff. “We’ve been expanding our call center and just completed a move to a larger fulfillment area. Consumers expect a higher performance bar this year.”

Eddie Bauer, Redmond, WA, spruced up its Web site with content, adding an online magazine with articles, interviews, and style suggestions. Audio streaming service EB360Radio serves as online Muzak, providing a relaxing mix of tracks customers can listen to while they shop.

Dallas-based Blockbuster, Inc.’s online business has gone into overdrive since last season, when it didn’t launch until late November. The company started its online holiday push last month with a Halloween-flavored sweepstakes at blockbuster.com, giving customers a chance to win a DVD player and more than 100 horror movie classics.

From Oct. 3 to Nov. 3, Blockbuster gave away one Sony PlayStation daily to visitors who registered at the site. The chain’s Rewards newsletter will present holiday gift ideas to its five million subscribers. “Ultimately, e-commerce is not our goal,” says spokesperson Karen Raskopf. “People expect us to be there, but our site basically exists to support the retail stores.”

It’s not even the holidays that Blockbuster is anticipating the most. “We’re really getting ready to push our online rental service, which launches early next year,” says Raskopf.

Boom or Bust? Experts can’t agree whether e-commerce will continue to explode this year or come back down to earth a little bit. Gartner Group, Stamford, CT, says e-shopping worldwide will surge to $19.5 billion from $10.5 billion last year, as consumers grow comfortable online and Internet penetration continues to grow. However, Jupiter Communications, New York City, which is usually one of the more enthusiastic cheerleaders for Internet growth, predicts that holiday shopping will rise 65 percent to $11.6 billion in the U.S. – small potatoes compared with the 126-percent jump recorded in `99. According to Jupiter analysts, growing Wall Street skepticism toward online companies and the advertising dollars wasted by them last year could limit promotion plans this year and, consequently, overall traffic.

Online retailers may still harrumph that the media is distorting the issues and scaring off customers, but most shoppers are more concerned about dealing with an unfamiliar brand than having their credit card number swiped. They expect the same – if not a better – level of service and selection than they find in the local store.

With the Wall Street gravy train dwindling and Goliaths such as Amazon.com broadening their selections, online retailers who don’t gain loyal customers this year could be heading for a lonely Christmas Future.

Online competition has brick-and-mortar stores vying for their share of Christmas presence.

Holiday shoppers are expected to spend $10 billion online this season – double last year’s total – despite the high-profile stock and delivery glitches on a number of sites during the 1999 season.

Forrester Research, Boston, surveyed consumers and found that one-third of Internet users (or 16.6 million) plan to shop online this year. Average spending will hit $603, as more shoppers opt for online convenience and heavy users buy more items like airline tickets and wine for Christmas dinner, Forrester reports.

Next year, spending will zoom to $64 billion from 41.6 million shoppers – but spread among fewer sites, after also-ran retailers shut down following this holiday season in a continued online retail shakeout, Forrester projects.

The hook for e-tailers this holiday will be convenience, with sites playing up browsing, gift suggestions, and delivery capabilities. “Price won’t be a key incentive like it was last year,” says Gwen Morrison, managing director of Frankel Brand Environment, Chicago. “Last year, retailers were practically giving merchandise away to attract first-time buyers. Investors are wary of that now.”

That challenges department stores and mass merchandisers to play up their own assets. “There’s nothing like experiential shopping – decorations, music, atmosphere – to get you in the holiday spirit,” Morrison says. “[People] shop for entertainment.”

Department stores should emphasize decor and events; offer direct shipping, gift-wrapping, and conveniences similar to Web sites; and treat loyal customers to gifts with purchase. “Instant gratification is an especially strong advantage for brick-and-mortar stores,” Morrison says.

Mass merchandisers have a bigger chore creating holiday events that become family traditions. “They need a branded way of delivering the holiday experience, even if they change the theme every year,” Morrison suggests.

Wal-Mart kicked off its season in late September with Toyland 2000. In-store events each Saturday invite kids in to play, and include Who Wants to Be a Millionaire, Lego Build-N-Score, Celebrate Everything Barbie, See What Little Hands Can Do with Play-Doh Playsets, and Learn to Play the Pokemon Trading Card Game. Wal-Mart handles in-house. As always, the chain plays up pricing and one-stop shopping in stores and online.

Whether mid-price or upscale, brick-and-mortar retailers that can play up the fun of holiday shopping and minimize the hassles will hold their own against the Web.


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