Web retailers brace for holiday rush

New York - 'Tis the season for consumers to do their shopping online, and while analysts said such sales could soar as high as $8 billion for the full 1999 year, the holiday season is also the moment of truth for many Web retailers who must prove their worth.

Analysts predict this holiday sales season, which typically accounts for 50 percent or more of traditional retail sales, will also be a make-or-break quarter for the proliferating number of consumer "e-tailing," or electronic, retail sites.

With so many retailers seeking to angle into the game, analysts said competitive prices and a clever advertising campaign will not be enough to make a company profitable. Rather, the ability to build customer loyalty -- and repeat shopping visits -- is seen as key to success or failure.

"The end game is that many of these new Internet e-commerce businesses will be gone by January," said John Grace, executive director of brand consultant Interbrand, a unit of Omnicom Group Inc. (NYSE:OMC). "They can't all win."

"Most of these e-commerce offerings are trying to seize the day with a quick hit, hoping that if they get the eyeballs, they'll get the business," Grace said. "Our advice to these companies is you may get some of them once, but you'll never see them again."

Investors are confident
In anticipation of strong online retail sales, investors bid up the share prices of selective names on Friday, the first day of the official U.S. holiday shopping season.

Shares of diversified retailer Amazon.com Inc. (Nasdaq:AMZN) closed 5-7/8 higher at 93-1/8. Shares of pioneering Internet toy-seller eToys Inc. (Nasdaq:ETYS) gained 2-1/4 to 66-5/8. Online shopping mall Cybershop.com Inc. (Nasdaq:CYSP) rose 3-5/16 to close at 12-7/8. All stocks trade on the Nasdaq stock market.

"While it is unclear whether holiday gift shopping has begun across the Web, we believe it has clearly begun on those sites most closely tied to gift shopping," Lauren Cooks Levitan, the online retailing analyst for BancBoston Robertson Stephens said in a research report earlier this week.

She said winners heading into the Thanksgiving weekend included eToys, KBKids, the online toy unit of Consolidated Stores Corp. (NYSE:CNS), Victoria's Secret, the lingerie business of Intimate Brands Inc. (NYSE:IBI) and Wine.com, in the build-up to the new year.

Overall, analysts expect online holiday sales to reach anywhere between $4 billion to $6 billion this season, more than double the amount last year, with toys and consumer electronics being the top sellers. For the full 1999 year, broker Volpe, Brown Whelan estimates $8.5 billion in spending, up from $3.0 billion in 1998.

"This year a lot of the dollars are going to come from consumers who are very experienced online shoppers," said Seema Williams, an online retail analyst with Forrester Research Inc.

Overcoming technical challenges
About 4.3 million households have been shopping online for at least two years, and they are expected to spend up to about $650 online each, according to Forrester Research estimates. Women shoppers online could exceed men for the first time, noted Ms. Levitan, the Robertson Stephens analyst.

This year companies are lining up to deal with some of the technical challenges that led to crashes at a variety of sites amid last year's heavy traffic. Other retailers are busy sweetening their customer service programs, analysts said.

Most industry watchers agree that the Web's biggest names such as America Online Inc. (NYSE: AOL) and Yahoo! Inc. (Nasdaq: YHOO), as well as Amazon.com and eToys, will clearly benefit from already having a captive audience and an established brand.

Proliferating comparison shopping and online auction sites are expected to contract unless they succeed in making consumers aware of their site and keep customers coming back.

'We had a lot of trouble handling the traffic and the capacity last year. What we've really done this year is spent a lot of time focusing on not just Web site capacity, but shipping and customer service.' -- Jeff Tauber, chief executive of Web retailer CyberShop.com Inc.

"We had a lot of trouble handling the traffic and the capacity last year," said Jeff Tauber, chief executive of Web retailer CyberShop.com Inc. "What we've really done this year is spent a lot of time focusing on not just Web site capacity, but shipping and customer service."

Neither pure Internet retailers nor traditional retailers with an online presence will be immune to scrutiny from public shareholders and private financiers.

"They're going to have to take pretty big gambles as far as sales and marketing," said Ken Cassar, an online retail analyst with Jupiter Communications.

"There are several online merchants that actually have advertising obligations that are greater than their bank accounts and they are certainly hoping that sales will make up for it. I'm not sure that will be the case," Cassar said.