SAN FRANCISCO (CNN/Money) -
As everyone knows, it's tough to find good news in the technology and business sectors these days. Apart from a few rays of sunshine (such as in the videogame industry), most technology news now revolves around spotting the signs of the apocalypse: accounting irregularities, layoff notices, or lower-than-expected earnings.
But hold back those horsemen: A new report -- from the government, of all places -- shows that all is not lost in the tech hinterland. In fact, the survey focuses on a sector that has already endured more than its share of negative press and gloomy predictions: online retail.
On Aug. 22, the U.S. Census Bureau released its second-quarter 2002 online retail numbers, reporting a 24 percent jump in year-over-year results from the same period in 2001. By any measure, that's a healthy growth pattern. But consider the other findings: The 24 percent increase is even greater than the 20 percent increase in sales from last year's first quarter to this year's. The $10.2 billion worth of goods sold in the quarter represents the second-best quarter recorded by the bureau since the survey began in the fourth quarter of 1999. And while online retail grew 24 percent, total retail grew only 2.5 percent year-over-year.
So what's behind these numbers, which don't even include sales from the online travel, finance, and ticketing sectors? Ladies and gentlemen, we're watching what happens when online retailers grow up. After a very awkward and public puberty, online retailers now look like headstrong 19-year-olds finally beginning to make sense of the world around them.
One of the biggest factors behind the second quarter's growth, says Jupiter Media Metrix analyst Ken Cassar, was the launch of aggressive shipping promotions by companies such as Amazon.com (AMZN: down $0.24 to $14.93, Research, Estimates) and Barnes & Noble (BNBN: up $0.02 to $0.75, Research, Estimates). These companies each offered free shipping (Amazon based on the order's total cost, and Barnes & Noble according to number of items), and Buy.com stepped in and announced free shipping for nearly all orders.
The apparel industry also saw strong growth, with solid sales coming from the online divisions of major catalog retailers such as Land's End, L.L. Bean, and J. Crew. Even the beleaguered Gap did well, Cassar says. J. Crew recently reported that it again took in more sales through its website than it did over the phone -- a threshold that it first crossed in February. "It wasn't a blip," says Cassar.
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Though Buy.com's free shipping offer reeked of me-too desperation, the Amazon plan was a smart one. Through its own market research, Amazon settled on a price point ($49) that would entice its customers to buy more without sacrificing too much of the company's profit margins by eating the shipping costs on bigger orders. No, that's not rocket science, just mature business strategy finally put into practice. Don't count on seeing the stocks of companies such as Amazon hitting their lofty 1999 highs anytime soon, but for what it's worth, Amazon's stock has risen 21 percent during the last month.
And what about the future? With the threat of a double-dip recession looming, many expect the third quarter to be a tough one. Online retail may well see these growth patterns taper off. But the fourth quarter, historically the strongest, should be huge. According to Jupiter, the percentage of consumers' holiday purchases allocated to online is growing every year. "Seasonal trends are exacerbated online," Cassar says. Happy holidays, one and all.
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