SAN FRANCISCO (CNN/Money) -
Consumer spending, more than anything else, kept the economy afloat during the downturn and now is pushing hardest in the recovery.
Consumer spending is already so strong, in fact, that the week-to-week and month-to-month sales figures for the 2003 holiday season won't spike as high as they normally do.
"Year over year, the data shows, this will be the strongest holiday season since 1999," says Scott Hoyt, director of consumer economics for Economy.com. "But because consumers have been spending since September, there's not much pent-up demand. Consumers have already spent up demand."
Of course, even if the month-to-month figures don't jump off the chart, consumers still spend disproportionately this time of year. In the world of offline retail, some trends are shaping up already, less than a week into the holiday shopping season.
With consumer spending strong, retailers are feeling confident and are even discounting new products, if only for a short time. "In the past, retailers put good prices on last year's products," says Steve Baker, an analyst with the NPD Group. "[Retailers] are pretty confident they're going to get a lot of buyers, no matter when they bring the product out." Baker says digital cameras and DVD burners, both of which recently fell below key price points, look like hot sellers.
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But the biggest retail trend so far this season is that consumers are taking to online shopping in unprecedented numbers. According to research firm ComScore Networks, the online retail sector will record $12.1 billion to $12.6 billion in sales this holiday season, an increase of 25-30 percent from a year ago. A recent ABC News survey found that 31 percent of Americans will shop online this season, up from 24 percent last year.
Why are more people choosing to spend online this holiday season? Two main reasons, one squishy and one a result of serious effort.
First, online shopping continues its march toward societal acceptance. The heebie-jeebies that kept people from buying anything more than a book or a CD have subsided.
Second, and more important, "online is becoming more like offline," says Patty Freeman-Evans, an analyst with Jupiter Media. Online companies have greatly improved their operational capabilities to meet customers' expectations. Many consumers, including this writer, tend to put off holiday shopping until the last minute.
Historically, this presented a problem to online retailers, who couldn't handle last-minute order routing and shipping. Now many shops have overhauled their back-end systems to handle procrastinators' purchases. "Over 20 percent of online retailers will be offering ordering up until Dec. 23 for delivery on the 24th," says Freeman-Evans, who cites Circuit City (CC: Research, Estimates) as a prime example of the changes.
Another development this year -- which assists consumers and companies alike -- is comparison shopping. Sites such as Yahoo (YHOO: Research, Estimates) and Ask Jeeves have relaunched their product search pages, improving both the intelligence and product breadth of their comparison engines.
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Offline shops like Macy's also recently unveiled comparison engines for their websites. Even though the products compared on Macy's site can be found only at Macy's, Freeman-Evans says, the service is useful to consumers and could help the retailer by reducing customer service costs and lowering the return rate on products.
It's too early to determine this year's winners and losers in online retailing, but some categories are performing more strongly than others. According to ComScore Networks, the software and media category performed "well above" the online retail average. Specifically, computer software, movies, music, and videogames posted growth of 50 to 100 percent over year-ago levels, according to a statement released by the firm. Other categories, such as apparel, consumer electronics, and toys, merely saw increases "within a few percentage points" of the online retail average.
A note of holiday caution to investors, however: With consumer spending as strong as it's been for most of the year, we likely won't see the typical holiday and Q4 pop to stocks like Amazon (AMZN: Research, Estimates) and eBay (EBAY: Research, Estimates). They're already trading at nosebleed levels; much of the increased consumer spending has already been priced into these stocks (and then some).
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