Santa goes cyber
E-commerce firms expect a shopping boom during the holiday season
November 26, 1998: 1:05 p.m. ET
Jupiter Communications
NEW YORK (CNNfn) - For once, there's some reality behind the hype.
For much of this year, investors have flocked to electronic-commerce stocks like bees around their queen, despite the fact that many of these firms have yet to turn a profit. Indeed, the smallest corporate announcement is often enough to send a company's stock up 50 percent in one day.
Now, however, there's evidence that those investors who have put hope before fundamentals may have been on to something all along.
Several recent reports have forecast a huge boost in online shopping in the upcoming holiday season. A Dell Computer Corp.-Louis Harris survey found that 43 percent of U.S. computer users are likely to shop on the Internet.
Market research firm Forrester Research Inc. forecast $3.5 billion in online sales for the 1998 holiday season, while Jupiter Communications estimated a more conservative $2.3 billion figure for the season.
A recent Visa study predicted 46 percent of Web surfers will buy a holiday gift online this year. Of those shoppers, 60 percent will be buying on the Internet for the first time.
Consumers generally find online shopping more convenient than navigating through great throngs of holiday shoppers at their local mall, and they are increasingly finding what they want on the Web.
"People who shopped on the Internet early on tended to be more technologically sophisticated than the population as a whole," said Bill Curry, a spokesman at online bookseller and e-commerce giant Amazon.com Inc. (AMZN).
"In 1996 our best-selling book was a computer book. In 1997 our best-seller was Into Thin Air by Jon Krakauer. That shows how online shopping has extended to people outside the techie demographic."
"There's a greater level of comfort shopping online," said Derek Brown, e-commerce analyst at Volpe Brown Whelan. "Consumers are more used to the environment. They're more confident and aware of security issues."
Sense of security
The irony is that while the average Web surfer is more likely than ever to give online shopping a chance, research indicates consumers are still wary about the security of credit-card transactions.
Reports of credit-card fraud abound, and there have been several news articles over the past few months regarding security glitches in Web browsers and Internet sites.
According to the Dell-Harris poll, 85 percent of respondents who have shopped online said they were strongly or somewhat concerned about the security of online transactions. Analysts say companies need to do more to bolster consumer confidence.
"Successful online merchants need to devote time to customer service," Brown said. "Companies need to realize customers do have fears and they need to address those fears head-on."
Such established companies as Amazon, The Gap Inc. (GPS) and Eddie Bauer clearly state their security measures, typically informing surfers that they are about to enter a secure server before they volunteer any personal information.
Clearly, though, the thought of people's credit-card numbers landing in some hacker's hands leaves many people cold.
But Amazon's Curry said security fears exist at least as much in the real world as they do online.
"The more worrisome reality is when you hand your credit card to somebody at a restaurant or a store and they walk out of a room with it," he said.
The price you pay
Nonetheless, the fear of credit-card fraud apparently won't be enough to stop Web surfers from buying backpacks from Eddie Bauer online.
"Security concerns are still high, but that's exceeded by price [issues]," said Nicole Vanderbilt, Jupiter's e-commerce analyst. "In our survey, the number-one issue people considered with online shopping was better prices. Number two was credit-card security."
Market research indicates consumers believe they pay less for items they purchase online. Much of that, however, seems rooted in perception rather than reality.
It's true that many sites offer goods at discounted prices. But after factoring in shipping and handling costs, customers end up paying about the same as they would if they bought their goods at a store.
Analysts said customers feel they're getting a better value because of the information available online with the products. Booksellers like Amazon and Barnes and Noble, for example, include reviews alongside many of the books available from their sites.
"Consumers don't feel like they're being had because there's more information available," Vanderbilt said.
Stocking stuffers from cyberspace
Despite the expected jump in online shopping during the holidays, both the Dell-Harris and Jupiter surveys noted that gift buying is still an untapped market.
Jupiter found that 11 percent of online buyers said the majority of their online purchases were gift related. Only 18 percent of respondents to the Dell-Harris survey said they were extremely or very likely to shop for gifts online during the holidays, while 53 percent said they were not very likely or not likely at all to shop for gifts.
"Consumers are far more sensitive with buying gifts than they are with buying personal items," said Nicole Vanderbilt, e-commerce analyst at Jupiter. "They're more concerned in making sure items arrive on time, if they're damaged, those kinds of issues."
Vanderbilt also noted that most e-commerce firms have not promoted their sites as gift-buying outposts. Amazon.com, however, changed that last Tuesday when it launched a gift shop on its Web site.
Along with its book and music offerings, Amazon now offers consumer electronics, toys and games. (Befitting investor enthusiasm over e-commerce stocks, Amazon shares soared more than $22 the day it made the announcement.)
Another reason for such gift-buying wariness may be that consumers are used to comparing certain items, such as clothes. Though pointing and clicking your way to a purchase is often more convenient than trudging out to a store, many people find a digitized image of a shetland wool sweater from J. Crew.com a poor replacement for tactile comparison.
Analysts, however, say that will change over time.
"Look at the success of J. Crew or L.L. Bean," Brown said. "Catalog companies have to show their items with pictures. J. Crew is a good example of a company that's done a good job of replicating the feel of their catalog online."
In the long run, it's the catalog-shopping model that online shopping may eventually displace.
"Catalog sales are largely driven by females in the offline world," Vanderbilt said. "Online buying is connected to online tenure, and it's still mostly male. But in the next 12 to 18 months we'll see a shift as more women get online and catalogers get more aggressive in their online efforts."
-- by staff writer John Frederick Moore
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