Online retail takes stock for Christmas?

Author: Daphne Kasriel

Date published: 12 Oct 2007

At this time of the year, retail websites around the world are gearing up for the Christmas rush, with final re-designs, new stock additions to the sites, and roll-outs of pre-Christmas online marketing.

Key trends

Ghost of Christmas future

Retail majors threaten online specialists

Last Christmas… You gave online

Commercial opportunities

o Look to male buyers. The internet has unique attractions for male buyers, and coupled with men's notorious late Christmas shopping habits, offers great selling opportunities. Add-ons such as recommended accessories to the main gift, or packaging in stylish gift boxes offer further potential;

o Focus on specific high spending pre-Christmas weeks. The main national markets show slightly different peak weeks in the run up to Christmas, partly due to expectations of delivery times.

Summary

Online Retail Sales: The driver US market is finally seeing a slowdown in the super growth of online sales. However, look out for online sales accelerating amongst China's young, urban middle class, including a seasonal Christmas sales peak.

Christmas 2007: Nevertheless, Christmas 2007 is set to be a record for online retail results. A very large percentage of annual sales will occur online in the last few weeks of the year on a worldwide basis. Expect to see heavy online shopping in particular from men seeking hassle-free last minute gifts.

Retailers: Many store-based majors continue to struggle to get their web-presence right. Small-medium players have found an easy route to market on the web. But expect the majors to start getting it right. Smaller players will suffer from the competition, and from the positive associations that security-conscious consumers have regarding established big retail names.

Technology: Work is progressing on upgrading online product images, and better image presentation could add another fillip to online sales worldwide.

Ghost of Christmas future

Euromonitor International data project a slight diminishing in the rate of growth of internet retailing to 2011. At that point, retailing will still be dominated by the traditional store-based market. US online sales will more than double from US$72 billion in 2006 to US$145 billion in 2011 (in 2006 prices). Nevertheless, this will still represent just 5% of total US retail sales.

The expected pattern is that online shoppers will continue to shop more online, but that a stubborn segment of the population will continue to avoid online shopping altogether. Surprisingly, some 38% of US households, for example do not have internet access.

On the other hand, any improvements in web selling that bring it closer to the experience of real world shopping could add a significant boost to online sales.

The key aspect is the quality of the image shown on the net. At present, multiple image galleries allow the consumer to see the product from different angles or in different positions. However, consumers complain that in many cases they do not really have a feel for a product they have only seen on the screen. New 3D image technology could enhance the experience significantly. One current example is ZOOM3D.net which uses technology based on Adobe Flash to allow the web user to zoom in and look right around the product. (Examples can be viewed on www.zoom3D.net)

Product categories most likely to benefit most from better image presentation will be non-tactile, individualised items, with for example, giftware (ceramics, glassware etc.), household goods (furniture, lighting etc.), designer and bespoke goods, and antiques/second hand goods amongst the early winners.

Retail majors threaten online specialists

The world's major store-based retail industry has yet to get to grips with the internet.

A big issue here is that senior retail management until recently have come from store-based careers. Websites were often seen as a threat to the store trade, and were not allowed to compete properly with the core store business.

Even in the run up to Christmas 2007, many retail groups are still revising their web presence, often with significant re-designs (in contrast such groups would rarely go through major overhauls of their high street store fascia).

A survey in July 2007 found that more than a quarter of store retailer respondents were planning some redesign of their websites in the next 3 months, and 20% in the next 3-6 months. (On the other hand, this was broadly in line with the virtual retailers' expectation, and in part reflects the fact that continual refinement is part and parcel of online retailing.)

(Source: survey of Internet Retailer's e-newsletter subscribers, analysed by Vovici Corp.)

Priorities for website updates included:

Better page and category organisation (68.9% of store-based retailers). This is entirely the responsibility of website owners and could have been better planned at the outset. Smoother navigation (29.5%) – is similarly an internal web design matter;

Lower down the list are: speedier page downloads (29.5%) as this area has largely been solved by widespread adoption of broadband; and faster checkout (39.9%) which is largely in the hands of banks and online merchant account providers, including globally-recognised PayPal - thought to be overly slow by some in e-commerce;

“More product reviews and ratings” shows at just 40.9% - yet this is an important area, as peer group recommendation is a key factor in online purchasing decisions. Online retailers perhaps consider that consumers are just too savvy to give retailers' own ratings pages much credibility

Retailer Plans to Redesign Websites in Coming Months

	All	Store-based retail	Catalogue	Virtual merchant
3 months or less	28.6	26.8	28.6	30.9
3-6 months	19.6	24.4	11.4	21.3
6 months-1 year	26.5	24.4	40	21.3
1-2 years	15.9	14.6	8.6	17
2 years +	9.4	9.8	11.4	9.5

Source: Internet Retailer/Vovici Group

Retailer Website Improvement Priorities

	All	Store-based retail	Catalogue	Virtual merchant
Smoother navigation	67.3	59.5	65.7	64.9
Better product and category page organisation	68.9	66.7	74.3	72.3
Faster, more intuitive site search	53.9	54.8	68.6	48.9

Source: Internet Retailer/Vovici Group

Following the success of online sales last year, the coming Christmas should reveal the much greater emphasis that store groups are now placing on their websites. And despite difficulties to date, the store majors will surely fill this web gap in their overall retail presence, putting pressure on the virtual-only merchants who have found relative ease of entry and early success in online retail.

The store-based majors have substantial advantages:

Established brand names making mass media advertising and online marketing easier;

Brand reputation and high street visibility – adding vital consumer confidence when shopping at their websites;

Brick and mortar stores – allowing consumers to buy online and pick up at the store, or to see a limited selection in store, with a much wider choice available online.

Last Christmas… You Gave Online

So how will this Christmas be for the online retail sector? Last Christmas recorded strong performances.

In the USA, Christmas holiday sales (defined as the period November 1st – December 26th) rose by 26% in November/December 2006 over the corresponding period in 2005. In the final week before Christmas, sales were up by an impressive 38% as US consumers showed their faith in the ability of web retailers and their carriers to deliver before Christmas Day. (Source: comScore.)

Total US online retail spending reached over US$23 billion in the 2006 holiday season.

Looking at the big three economies in Europe, Germany had the biggest online Christmas expenditure last year, with online sales of €5.4 billion in the Christmas season (defined as 30th Oct-31st Dec 2006).

UK consumers, meanwhile, spent €4 billion on Christmas online shopping and French consumers €1.9 billion.

As with the USA, online shopping in these markets soars before Christmas - despite the risk that postal services and even guaranteed courier services may not actually deliver in time in the final days before Christmas Day.

On average, activity on secure pages of websites (where transactions are completed) rose by an average of 50% in France, Germany and the UK, compared to the period prior to the holiday shopping months of November and December.

The hottest online shopping week in Germany is two weeks before Christmas (11-17th Dec), when visits to secure web pages were up 78% against the pre-holiday shopping period (28th Auguist-29th October).

In France and the UK, the hot week was three weeks before Christmas (4th –10th December). The UK shows a lower spike in secure page activity – up 69% - while France showed a massive 90% surge in this key week over the pre-holiday online shopping activity.

Other surveys show that men are more attracted to online shopping in general than women, seeing it as less time-consuming and causing less hassle. This should rise substantially as the pre-Christmas high street rush puts even more men off the high street and as a lack of consumer shopping planning leads to last minute online buying.

European Christmas Online Shopping Index Weekly Performance

	UK	France	Germany
Pre-Holiday Base	100	100	100
Week 1	137	153	157
Week 2	146	162	153
Week 3	151	165	156
Week 4	165	179	163
Week 5	169	179	172
Week 6	169	190	176
Week 7	164	188	178
Week 8	118	164	150
Week 9	98	148	114

Source: Euromonitor taken from comScore Networks

Outlook

Expect online retail sales to boom again this Christmas, but for annual growth rates to start slowing within three years, in line with overall online sales growth in the USA and subsequently in Europe.

While online sales growth in the USA slows, look out for prospects in China in the future. Online sales are set to take off amongst the young urban middle class. This same group also tends to celebrate Christmas as a secular period of gift-giving, home decorating and family meals etc. This and other aspects of cultural links with the West are likely to receive a further boost with the Olympics in Beijing in 2008. Meanwhile, Christmas for much of industrial China also usually means a surge in exports to Western consumer markets – and it is worth noting that commentators are waiting to see whether recent scares over the safety of Chinese-made goods will dent Chinese exports significantly and in a sustained way. Although toy exports currently only account for 0.7% of total Chinese exports, there are concerns that consumers are growing wary of the "Made in China" brand across all sectors.

Apart from any general slowdown in consumer spending, expect to see online sales growth stabilize over the next few years, though still remaining above double-digit levels by 2011.