Happy Holidays Expected For Online Retailers

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November 24, 2003 (12:23 PM EST)

Happy Holidays Expected For Online Retailers

Online retail sales in the holiday season are expected to increase by 42 percent this year, driven in part by more offers of free shipping and discounts for buying early, a market research firm said Monday.

Online sales between Thanksgiving and Christmas are expected to reach $12.2 billion this year, compared with $8.4 billion last year, Forrester Research Inc. said.

Shipping costs are the main reason that consumers don't shop online, so more and more vendors are offering free shipping with restrictions such as a minimum-size purchase, which more than makes up for the added cost to the vendor. Such promotions have contributed to the increase in online sales, while not having a serious impact to retailers' bottom-lines.

"Although free shipping was a huge draw (in 2002) to get consumers in the door, very few consumers actually received free shipping on their way out the door, primarily because restrictions and limitations were so high," Forrester analyst Carrie A. Johnson said.

Most consumers, however, did not abandon their shopping carts once they discovered they didn't qualify for free shipping.

"Consumer really don't mind free shipping with restrictions," Johnson said. "They fundamentally understand that there's a cost of doing business online, so retailers absolutely should not feel uncomfortable about layering on restrictions as long as they're clear and consumers don't feel duped."

Along with free shipping, more vendors are expected to lure shoppers online with discounts for buying early. Online retailers are already offering discounts as high as 20 percent to people who buy in early December.

"I expect a lot of retailers to offer incentives to shop early, so they can load-balance their shipping better," Johnson said.

Earlier this month, Jupiter Research, a division of Jupitermedia Corp., also predicted a jump in online holiday sales this year, although not as high as Forrester's projections. Jupiter expects sales to increase by 21 percent over last year to $17 billion.

Books, clothing, toys, music, videos and gift certificates, in order, are expected to be the most popular holiday gifts, Forrester said. Of the 171 million people in the U.S. with Internet access at the home, 57 percent, or 97 million, are shopping online.

Because of strong growth in the first three-quarters of 2003, total online sales for the year are expected to top $100 billion, surpassing Forrester's previous projection of $96 billion.

Online sales will account for only 4.5 percent of total retail sales in the U.S. this year, according to Forrester, but the year-to-year increase is dramatically higher than offline sales. In 2002, online sales accounted for 3.6 percent of total retail sales.

Online sales are projected to continue increasing for the foreseeable future.

"There's still a big portion of people who haven't shopped online," Johnson said. "Over time consumers only increase their purchases on the web as they get more comfortable shopping."

Offline holiday sales is expected to increase by 5.7 percent from last year, according to the National Retail Federation. That number, however, is considerable better than the 2.2 percent increase between 2001 and 2002.