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Retailers ring in cyber sales
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December 24, 1998: 2:31 p.m. ET
Real world retailers see real potential in soaring e-commerce numbers
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NEW YORK (CNNfn) - For the first time since the advent of one-click stocking stuffing, brick-and-mortar retailers are awakening to the enormous potential of electronic commerce amid a holiday season par excellence in cyberspace.
Internet commerce, to be fair, remains a relatively minuscule niche of the estimated $3.5 trillion U.S. retail market, accounting for less than 1 percent of total annual sales.
But it's a niche that may be on the verge of a meteoric growth spurt as evolving technology, coupled with an anticipated boom in Internet use early in the next century, drive tens of millions of more consumers to shop on line.
Kate Delhagen, the director of the Online retail strategies group at Forrester Research, said her firm has forecast $3.5 billion in Internet sales for the fourth quarter. "We are absolutely on track to hit that number and perhaps exceed it by a little bit," she said, noting that "no category is struggling at this point in time."
Altering the entire retail landscape
Forrester's Web prognosis calls for $7.8 billion in full-year sales, a number the firm expects to more than double in 1999.
"The potential for Web sales is tremendous and it carries the potential of completely altering and upsetting over the next few years all channels of retail selling," said Kurt Barnard, the editor of Barnard's retail trend report.
"As consumers become more comfortable with buying from the computer," Barnard added, "and this new generation that has grown up with the computer comes of age, what we will see is huge dollar amounts of retail sales being transacted on the Web and we will see a lot of stores become increasingly Web stores."
This also means the day may be nigh when the local retailer across the street from your home or office finds itself in direct competition with a similar shop in Germany, or any other merchant with an online presence.
At the vanguard of this trend, Barnard and other industry watchers say, are merchants such as The Sharper Image (SHRP), a specialty retailer whose off-the-beaten-track product line includes the "Turbo Groomer," an electric nose-and-ear hair trimmer, and the "Ionic pet brush," used to remove odors from domestic animals.
On Wednesday, The Sharper Image reported a 492 percent increase in holiday sales over its online site in the first three weeks of December from November.
The dramatic jump - which dwarfed a 9 percent gain in comparable store sales and a 27 percent increase in mail-order sales through the first three weeks of December - came on the heels of a 436 percent increase in online revenues in November, the company said.
Many others are sharing in the Internet spoils as well this season.
Last week, America Online (AOL) Inc., the world's largest Internet services provider with 14 million subscribers, announced to much fanfare that sales on its online Shopping Channel were already up 350 percent from last year.
AOL attributed much of the gain to strong showings by its retail partners, who include apparel giant Eddie Bauer, the high-flying eToys, and Omaha Steaks, which said its Internet sales more than doubled this December over the same month last year.
Meanwhile, floral retailer 1-800-FLOWERS is also reporting a blossoming Web business. The florist said its Web business is up 250 percent from last year. A company-conducted survey of 400 online customers found that more women are migrating to the Internet, representing 44 percent of all online shoppers, up from 33 percent in late 1997.
Other sites that have registered exceptionally strong holiday traffic are apparel retailers Siberian Outpost and The Gap, and Recreational Equipment Inc., which specializes in outdoor merchandise.
E-commerce comes with caveats
At The Sharper Image, the eye-popping surge led the company's chairman and chief executive officer, Richard Thalheimer, to headily predict: "As consumers get even more comfortable with online shopping, I expect Internet sales at our sharperimage.com Web site will continue to increase."
Ken Cassar, an Internet analyst with Jupiter Communication's digital commerce group, noted that Internet traffic at major retailers such as Toys-R-Us (TOY) and barnesandnoble.com, the Barnes & Noble (BKS) superstore chain's Web-based alter ego, is up anywhere from four to 10 times pre-holiday levels.
On the downside, however, high Web traffic can mean major logjams on shopping sites whose Internet servers are not geared to such an influx. Whereas companies can always add another server, or add capacity to an existing one, the physical demands of actually filling Web orders may be tougher to resolve in a pinch.
"You can't double your warehouse capacity overnight," says Cassar, noting the problems big retailers often confront when dealing with the record traffic flows to their sites.
The conundrum of how to reconcile soaring cyber-sales with real-world physical constraints is likely to intensify in the near future, judging from a few statistics.
The online book market, now just 2.4 percent of the total sector, is expected to mushroom to 11.3 percent of the market by 2002, according to Jupiter Communications. The music market, meanwhile, is seen growing from 1 percent to 9 percent of total physical sales over the same period.
"While the numbers are fairly insignificant right now," Cassar said, "they keep doubling year over year…Online sales will surpass catalog sales within 10 years."
The percentage of online shoppers relative to total Internet users is also expected to surge in the next few years, swelling from 22 percent of 76 million users in 1998, to 45 percent of 138 million users by 2002, Cassar said.
Barnard suggested that stores with a narrow market niche, such as The Sharper Image, are likely to ring up faster Internet sales in the short term than powerhouse retailers such as Macy's.com or other broad-based department stores.
"Many of these Web sites have terrible problems," he said. "They're not yet user-friendly, there are too many difficulties. Even if it were user-friendly, the vast majority are not really comfortable making a purchase on the computer."
--By staff writer Douglas Herbert
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