O, Come All Ye Online Shoppers

Despite a slow start for some brick-and-mortar stores, e-tailers are poised for a prosperous holiday season

by Catherine Holahan

A post-Thanksgiving warning from retail giant Wal-Mart Stores (WMT) that November sales were the worst in a decade raised concerns that retailers were in for a lackluster holiday shopping season. But early measures of Web traffic show online retailers have little to fear.

Microsoft's (MSFT) MSN Shopping, for example, released data on Nov. 28 showing a 21% traffic increase over the Thanksgiving weekend. On Nov. 27, dubbed "Cyber Monday" because of the many online discounts offered by retailers, traffic surged 63%, according to MSN Shopping. Rob Wolf, product manager at MSN Shopping, attributes the traffic boost both to improvements to the online comparison shopping site and growth in the number of online shoppers. "Increasingly, people are turning to online," says Wolf. "They like the convenience of online shopping sites."

Sales statistics also give reason for optimism. Nielsen//NetRatings (NTRT) reported that 19.2 million unique Web shoppers visited online stores on so-called Black Friday this year. The number is a 12% traffic increase over 2005, and retailers say it's a good sign, even if lower than the 30% traffic jump a year earlier. The slowdown is a reflection that fewer new Internet users are logging on to make purchases, says Heather Dougherty, a senior commerce analyst at Nielsen//NetRatings. "The number of new Internet users isn't growing at a significant clip anymore," says Dougherty. "So the growth is going to be from experienced buyers buying more online than they have in the past."

Feeling Stronger Every Day

Early data from ComScore Networks, which monitors e-commerce spending, is also positive. Online retailers spent $434 million online the day after Thanksgiving. That amount was 42% more than Web shoppers spent on Black Friday last year. Citigroup (C) Senior Retail Analyst Kimberly Greenberger says she expects a strong online shopping season, given what Web shoppers have seen so far. "It looks like more and more consumers are migrating to online purchases," says Greenberger. "We suspect that the numbers are going to get even stronger as we progress through the holiday season."

Greenberger believes online shopping will do well, regardless of any weakness seen at some of the brick-and-mortar stores, because shoppers are shifting more of their purchases from mall stores to Web sites. It's a trend bolstered both by the increased convenience of shopping online, thanks to comparison sites and better-designed store Web pages, as well as the breadth of products available online, including sell-out items such as the Nintendo (NTDOY) Wii.

The increase is likely to be felt among standalone online stores as well as the online arms of brick-and-mortar retailers. Blue Nile (NILE), an online diamond and fine jewelry retailer, is anticipating growth of 20% to 28% in the fourth quarter compared to last year. So far, says Diane Irvine, Blue Nile's chief financial officer, things are looking good. "I think we feel like we should have a good holiday season and [sales will] just get bigger from here."

Silver Lining at Wal-Mart

Scott Silverman, executive director of Shop.org, the online division of the National Retail Federation, says more than a fifth of Shop.org's member stores expect 75% growth in online sales over 2005. Another 29% are expecting growth in the 30% to 74% range.