Online sales strong, but e-retailers are cautious

This year’s online holiday shopping season may be used as a barometer to gauge the effects of the economic downturn and the tragic events of Sept. 11.

But so far, it’s been business as expected. Early signs are that the season is progressing about as predicted – from growth in online sales to the scaling back of major IT projects retailers put on the back burner in the face of grim financial times.

Nielsen/NetRatings Inc. in Milpitas, Calif., hasn’t revised its estimates that 106 million consumers will shop online this year, an increase of 27 per cent from last year, and that they will spend US$10 billion, a 43 per cent increase over a year ago. Traffic soared 59 per cent from the last week of October to the week ended Dec. 2, compared with 62 per cent during a similar period last year.

“This year is shaping up to be a year of business as usual, dealing with very challenging economic times,” said Lisa Strand, director and chief analyst at Nielsen/NetRatings.

San Jose-based GartnerG2, a research unit of Stamford, Conn.-based Gartner Inc., tweaked its US$11.9 billion fourth-quarter projection only “a hair” downward after the Sept. 11 terrorist attacks on the U.S., research director David Schehr said.

“It should be, within the U.S., a year of nice, reasonable, steady organic growth as more and more consumers begin to use the Internet for at least some of their holiday buying,” Schehr predicted.

But few retailers were able to complete any of the major IT projects that they had undertaken. Gartner analyst Geri Spieler said clients attending her firm’s retail conference the week before Sept. 11 reported they hadn’t done any significant work to improve their Web sites “because they knew the economy had gone down.” Spieler said some retailers beefed up servers, redesigned sites to improve navigation and finished scheduled projects, “but they did not go ahead with things like real-time inventory.”

Sears, Roebuck & Co. stands in marked contrast. For the first time, the Hoffman Estates, Ill.-based retailer is giving holiday shoppers the chance to order online and pick up items in its stores.

To offer that capability, Sears had to implement technology to enable near-real-time inventory checks so customers could determine whether an item was in stock at a given store, said Ann Woolman, a spokeswoman for the retailer. The item is then plucked from the shelf and sent to merchandise pickup, triggering an e-mail confirmation to the customer, she explained.

Sears now joins trailblazer Richmond, Va.-based Circuit City Stores Inc. as one of the few retailers that can perform the inventory checks necessary to enable in-store pickup. Gartner estimated last year that fewer than 2 per cent of online sites could conduct real-time inventory checks.

But few retailers accomplished such ambitious IT goals in time for this holiday season. Analysts said they’re still seeing investments in customer relationship management systems, financial applications and the replacement of aging legacy systems. But they’re also quick to note that retailers are careful to evaluate payback, and if they’re multichannel retailers, they’re more cautious about spending money on their Web operations.

“The Web is just another channel now,” said Lindsay Parker, a senior manager at New York-based Deloitte & Touche LLP’s consumer business practice. “It’s not really large or compelling enough to spin off or to lavish extra attention and money on. The return is not really such that it warrants the extra cash at this point.”

“Once the pressure from the pure plays subsided, retailers began … to realize they needed to be smarter on how they spend their IT dollars,” said Jeff Roster, an analyst at San Jose-based Dataquest Inc.

Some retailers have little choice but to keep up with the competition. New York-based Barnes& Inc. forged ahead with IT work to improve customer service despite poor economic conditions. Spokeswoman Carolyn Brown said the store now offers customers the ability to buy online and return items in the store, joining other multichannel retailers that have provided that capability for some time. The company is also giving customers the ability to place orders in-store for home or office delivery. But those IT projects “were started before the economy got bad,” Brown acknowledged.

Despite facing pressure to turn a profit, Seattle-based Inc. also put its IT staff to work, doing the necessary front- and back-end systems integration to make it easier for customers to check the status of their orders, ship dates and arrival times.

“It’s all about giving the customer better information,” said spokeswoman Patty Smith.