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Source: Business 2.0

Posted on October 30, 2001

      The coming holiday shopping season hardly seems like one that online retailers -- or any retailer for that matter -- would be looking forward to. The country is at war, bioterrorism has much of the nation wary, and the economy is inching toward recession. Case in point is Amazon.com, which warned analysts that its fourth-quarter sales would be similar to or up about 10 percent from last year's figures. The company previously forecast sales growth of 10 to 20 percent, which was revised downward from earlier forecasts.

      But despite the dim outlook, analysts are generally expecting strong growth in online retail sales during the holiday season. Gartner G2 expects fourth quarter online retail sales to grow 39 percent to $25.3 billion. Jupiter Media Metrix plans to release its holiday shopping forecast this week. Ken Cassar, a Jupiter analyst, said the company's preliminary findings predict between 10 and 20 percent growth in online sales. While weakness prevails in overall retail sales, online merchants are benefiting from an increase in the number of people with Internet access.

      "There are more and more people online," says Michael Cruz, senior analyst at Gartner G2. "The people who are online are gaining experience. As soon as people get a couple of years of Internet experience under their belts, that's when they start becoming Internet buyers."

      Though the predictions are sunny, this season's growth forecasts pale in comparison to the actual growth reported during the last two years. Jupiter reported 54 percent growth in online holiday sales last year, and more than 100 percent growth in 1999. Two years ago we saw the first big year of e-commerce, so it makes sense that the growth rate would subside as the market matures. There's also the price factor. A couple of years ago, online merchants offered deep discounts compared with their offline counterparts. But those died along with many of the dotcoms that doled them out like Halloween candy.

      Given recent events, convenience emerges as one of the most important factors in online shopping now. The Sept. 11 attacks have made people wary of traveling. If more people decide to stay home for the holidays, that could translate into more people shopping online. "Other things that used to be secondary to price, like convenience and depth of selection, seem to be rising in importance," Cassar says. "Online retailers allow the consumer to stay home, they ship directly to the gift's recipient, and they tend to carry products that can't be found in stores near most consumers."

      The ability to locate hard-to-find items brings up the matter of eBay. The online auction house continues to flourish while just about everyone else watches their sales and earnings plummet. The company recently posted third-quarter earnings of $18.8 million, up 24 percent from the period a year earlier. eBay also increased its fourth-quarter sales and profit projections. Forrester Research predicts that, by 2006, auctions will account for 25 percent of online sales. Carrie Johnson, a Forrester analyst, wrote in a recent report that consumers will increasingly turn to auctions to find deals they can't get offline.

      This isn't, however, a universal opinion. "I don't think people see eBay as a gift-buying place," Cruz says. "It's like giving someone hand-me-downs for Christmas."

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