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By DAVE GUSSOW
At Sears, customers can buy online and pick up the order at a store or have it delivered. Online gift retailer Red Envelope started sending catalogs and coupons to its customers by traditional mail to enhance its electronic efforts. It's a holiday season of adjustments for online and traditional retailers, and not only because of the dot-com meltdown and the economic recession. Those online merchants that survived to reach another holiday season are trying to figure out how to attract consumers on the Web, how to get them to buy and (they realize this matters now) how to make it profitable. "I do think they're all still learning, and learning from mistakes, big mistakes," said Karen Scholl, content editor at market research company Resource Marketing.
Early signs this holiday season are encouraging for online merchants: About 43 percent more people shopped online Thanksgiving weekend than last year, according to market research company Jupiter Media Metrix. Jupiter predicts holiday online and travel sales will reach $11.9-billion this year, up about 11 percent from last year but a far more modest increase than in previous years. "There really isn't anything amazing to point to different from previous years," said Rob Leathern, a Jupiter analyst. "It's what we're referring to as the first normal online holiday shopping season." Missing this year, Leathern says, will be online retailers spending lavishly on marketing, particularly TV. And, while bargains are out there, most retailers have given up on the idea of selling everything at a loss simply to attract customers. "Because of the general economic malaise, we'll see some aggressive promotions from traditional companies, both online and offline, trying to get consumers to go to stores," Leathern said. "It's a good time to spend money if you have it to spend. Deals are out there." Some of the hottest sites, in fact, are all about deals, such as Smartbargains.com and Overstock.com, sites that specialize in closeout, discontinued or refurbished items. For example, Smartbargains.com had a 335 percent increase in traffic in September over August's numbers, according to Jupiter. Sales rose 85 percent, even though the site is not yet turning a profit, according to Carl Rosendorf, Smartbargains' chief executive. "No. 1, the consumer is exceptionally value-conscious this year," Rosendorf said. "No. 2, more than the last holiday season, consumers like that they can buy from the safety of their home. That is a real factor." Smartbargains features name brand, recent merchandise discounted 50 to 80 percent, Rosendorf said. Because so many retailers canceled orders after the Sept. 11 terrorist attacks, Smartbargains has been able to take advantage of a surplus of goods that companies need to dump. "Because we're online, we make quick decisions," Rosendorf said. "We can make a decision (to buy) Monday, get the goods Tuesday and have it online Wednesday. The process is very, very quick, much faster than in brick and mortar." Particularly hot segments include apparel (almost anything cashmere), comforters and electronics, such as digital cameras and DVD players. "People are buying for themselves and their homes," Rosendorf said. "They're buying the basics." While Rosendorf wouldn't discuss specifics of his company's finances, he said the boost in visitors and sales has raised hopes that the company will become profitable sooner rather than later. Overstock.com of Salt Lake City rose to the 10th-largest retailer on the Web, according to Jupiter. Chief executive Patrick Burns expects $100-million in sales this year, down from previous hopes but far more than the $36-million last year. "I think we did meet some kind of critical mass," Burns said. However, some experts caution about reading too much into sales figures, particularly when sites have to resort to promotions such as free shipping and discounts. "In a bargain-basement Christmas, the sales numbers may look good but it doesn't tell the whole story," said analyst Geri Spieler of market research company GartnerG2. "Companies can say, "Wow, I sold $1-million's worth of goods today,' but they may make only 2 cents." Traditional retailers, though, have become the dominant force online, with top sites from companies such as Wal-Mart, Target, Kmart, Sears and J.C. Penney, as well as catalog operators such as Lands' End. For traditional retailers, the emphasis seems to be on blending online and offline offerings. Check a Wal-Mart advertising flier closely and you'll see references that specific merchandise in a store is also available online. And signs in the stores mention the Web site. "We want to integrate the customer shopping experience across all channels, whether shopping in our stores or online or kiosks," said Cynthia Lin, a spokeswoman for Walmart.com. "We're reaching out to the Wal-mart customer to let them know that Walmart.com provides additional service and merchandise and complements the stores." Selection differs, though, between online and offline, Lin says. "Our stores have limited floor space and can carry only so many books, CDs and DVDS," she said. "Online we don't have those constraints." Still, there's merchandise in the stores you won't find online. There are departments the site does not offer, such as apparel. But many traditional retailers still are assessing what they need to do in the online world. "A lot of different things that traditional retailers can do they haven't done because of organizational or resource constraints," Jupiter's Leathern said. "I expect them to be a little slower given the economic situation." Beyond the uncertain economy, online retailers have to deal with persistent perceptions that have plagued them for years, according to recent studies. Those range from consumer worries about credit card security to customer service to ordering glitches. In fact, consumer complaints about the Internet rose 62 percent last year, according to a survey by the National Association of Consumer Agency Administrators and the Consumer Federation of America. But one of the biggest questions this holiday season may not even be in the control of the online retailers: delivering the goods. FedEx and UPS expected an increase in shipments of online merchandise, as some surveys indicated more shoppers planned to avoid the mall and buy online. And, with tighter airline security and fewer people flying, more gifts may be shipped. The U.S. Postal Service also is trying to assure people that anthrax scares and heightened security won't mean late deliveries. "There is not any reason for anybody not to use the mail service and those packages are going to get there as they always would," said Gerry Kreienkamp, a postal spokesman in Washington. "There isn't a broad attack on the mail to most Americans." - Information from Times wires was used in this report. Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.
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