November 15, 2001
Retail forecast: Holiday shopping down, e-retail to grow slowly
WEST LAFAYETTE, Ind. The best-case scenario for holiday retail sales is to eke out a 1 percent gain from last year, says a Purdue University researcher.
"Store retailing will be very bad this year," says Richard A. Feinberg, professor of consumer science and retailing and director of the university's Center for Customer-Driven Quality.
The holiday season is the most important season of the year for retailers, Feinberg says. It accounts for 50 percent to 70 percent of sales and profits for the entire year.
"Internet retailing will be relatively strong this holiday season, though," he says. "Online sales will grow by at least 10 percent from $10 billion last year to about $11 billion this year."
For consumers, the picture is brighter, as merchants will use aggressive pricing, sales and advertising so they don't get stuck with full shelves of merchandise when 2002 starts, Feinberg says.
But there won't be as much on those shelves. The third quarter was a slow one for retailers, which means they didn't have the resources to buy lots of new merchandise. Those who put off shopping may have a hard time finding particular sizes and popular colors of merchandise.
"The Sept. 11 terrorist attacks made store retailers very cautious, and they have canceled orders for holiday merchandise," Feinberg says. "Store retailers will be hiring less, so fewer store employees will be selling things to customers, and delivering good customer service is less likely."
Feinberg says the exception to the dismal retail prospects are discount stores such as Wal-Mart, Target and Kohl's, which will be attractive to reticent consumers.
Even though things will improve for e-retailers this year, Feinberg says growth of online shopping will slow. "Holiday Internet retailing grew at over 100 percent last year over 1999.
"One reason for this slower growth than last year is that the base level of Internet retailing has reached the point where 100 percent growth is simply unsustainable. The 10 percent anticipated growth rate is still five to 10 times greater than the most optimistic estimate for store retailing."
Trend 1: The top three holiday e-retail sites will be eBay, Amazon.com and J.C. Penney Co. Inc.
"Consumers are going to purchase more holiday things on eBay, the online auction site that is the top e-retail site now."
"Amazon.com is the second leading e-retail site. Its alliance with Toys "R" Us will make Amazon.com the leading Internet toy retailer. Post-Sept. 11 'cocooning' will provide a big boost for Amazon.com this holiday season, which will benefit from less travel and since people will stay home more and buy things for home improvement and enjoyment."
"J.C. Penney is the third leading Internet retail site generally and will retain that spot in the holiday season."
Trend 2: Sept. 11 events have increased fear and safety issues that will affect this year's holiday sales.
"If fear increases, consumers will be reluctant to go to malls and stores. In that case, Internet retailing will benefit because of its perceived safety, convenience and price comparison shopping. Consumers will use 'bots,' (short for robots, which are specialized Internet search engines) such as mysimon.com, which search the Web for the best prices on merchandise the consumer is interested in purchasing."
All is not completely rosy for e-retailers, Feinberg says.
"Shoppers need to order ahead of time on the Internet, so it does no good for the procrastinating holiday shopper," he says. "Half of all holiday shopping is done in the two weeks before Christmas.
"Also, store retailers will be very aggressive in promoting and pushing holiday sales this year because they understand the difficult economy and want to get consumers in. And it's easier for mall stores to advertise than it is for the e-retailer."
Feinberg stresses that nothing is certain in this uncertain year. "Events are very fluid. People do not feel good when the down economy and war dominate the news.
"On the other hand, things can happen that would spark some celebration. In that case consumers will spend. But even if they do, retailers will not have the inventory to really take advantage of it."
Writer: J. Michael Lillich, (765) 4094-2077, email@example.com
Source: Richard Feinberg, (765) 494-8301, firstname.lastname@example.org
Purdue News Service: (765) 494-2096; email@example.com