Holiday Selling Season: High Hopes,High Stakes

Sarah Kugelman can't wait for Christmas. As chief executive of online retailing start-up Gloss.com, Kugelman is aiming to put a new face on the business of selling beauty products via the Web. But she knows that much of her success just may hinge on the potentially ugly business of posting big sales numbers in the upcoming holiday season.

"We recognize that getting the attention of customers and being part of their first online buying experience is very important to helping build our brand loyalty," said Kugelman, whose Gloss.com opens for business today. "It's about breaking through the clutter in the fourth quarter."

Hundreds - maybe thousands - of online retailers are thinking a lot like Kugelman right about now. All are gearing up for what unquestionably will be the Web's biggest holiday selling season ever. With the calendar set to turn next week to the fourth quarter of the year, online merchants are standing at the brink of a three-month selling blitz that could go a long way in determining the long-term winners and losers in the evolving field of Web retailing.

Indeed, the stakes are higher than ever before for Internet merchants. Let your site crash for two days in December and lose the equivalent of a week of online sales at any other time of the year. Worse yet, stumble in filling the orders that are placed and prepare to lose a customer for life.

Watching it all will be Wall Street investors and venture capitalists, who will grade fourth-quarter performance and reward the winners with new investments and ever-higher stock prices that, in turn, can be used to expand further and acquire rivals that do not make the cut.

"This had better be a blow-out Christmas season for Internet retailers from a stock perspective," warned Stephen Franco, an electronic commerce analyst at Piper Jaffray. "If it's just kind of a mediocre season, stocks are going to get pounded."

What a difference a year makes. In 1998, the idea of a holiday season selling boom virtually snuck up on the Web industry. Online retail sales of $2.6 billion during November and December blew out most industry projections and accounted for nearly 40 percent of the Web's total sales for 1998, according to estimates by research firm Jupiter Communications.

This year, the expectations are considerably higher. Jupiter, for instance, forecasts a near-doubling in holiday season retail sales to $5 billion. Not to be outdone, research firm Dataquest last week predicted a tripling in fourth-quarter merchandise sales on the Web.

But along with those lofty expectations come substantial new responsibilities for merchants as well. Far beyond the relatively simple task of keeping a Web site up and running, more attention will be focused than ever before on the logistics of processing customer orders and providing hands-on customer service, said Melissa Bane, analyst at The Yankee Group market research firm.

"It's been made out to be this fail-safe experience, but there's still lots of room for improvement," Bane said of online retailing. "Now, it's all about selling the product and getting the product out the door. There's not as much patience with faulty Web sites anymore."