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ONLINE BUSINESS

Will the Grinch Steal Christmas?

Facing grim economic news, many consumers are shortening their holiday shopping lists this year. And store owners across the country are worried. So why are online retailers full of holiday cheer?
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Faced with a deteriorating economic climate, retailers across the country are bracing for the worst holiday seasons in years. But as brick-and-mortar stores slash prices, one sector stands better-positioned to weather the crisis: online retail.

The holidays are a crucial money-making period for all retailers, of course, and this year's conditions have them worried. At a time when stores need cash the most, fearful consumers say they can't afford to spend any. Shoppers are focused on value and attempting to purchase only specific, planned items -- an ideal situation for online retailers, who both remove some of the temptation to buy on impulse and boast a reputation for bargains.

To be sure, the economic crisis has put the brakes on online sales' runaway growth. According to a report recently released by ComScore, a Reston, Vir.-based Internet research firm, October's growth is up only 1 percent from this time last year. But in a month when overall retail sales dropped 2.2 percent, any growth is noteworty.

So, will this be the year of the online retailer? Or will sales drop with the stock market? And what are websites doing to grab this season's dwindling dollars? To find out, we turned to a panel of Inc. 500|5000 online retailers.

What are your expectations for the holidays?

Eric Deniger, CEO of Working Person's Store, a Lakeville, Ind.-based seller of work apparel and footwear: We expect online traffic and sales to trend higher than last year's results. We are cautiously optimistic.

James Bendle, CEO of Baby Earth, a Round Rock, Texas-based company that sells eco-friendly baby products online and in a recently-opened brick and mortar store: Fairly strong still, with the understanding that the overall retail sales will be down. Our expectations are down, but we're still growing. People trim for themselves first and cut things for babies last, mitigating the effects of the downturn. But we've also seen surprising resilience in the goods we sell.

David Duong, CEO of San Diego-based ShoeMetro.com: When adjusted with our growth, I think our holiday season will be slower than normal.

Matt Rutledge, CEO of Woot.com, a community-focused site, based in Carrollton, Texas, which sells only one overstocked item a day: Because our sourcing methods are counter-cyclical relative to the fluctuations of normal retail channels, Woot stands to benefit from current conditions. We expect a solid 20 percent growth in the fourth quarter and an even better first quarter of 2009 as we match deal-hungry consumers with some spectacular surplus opportunities.

Shilo Jones, CEO of Evo, which sells ski and snowboard gear online and in a Seattle retail location: We are going to make thousands of powder-loving good little girls and boys really happy Christmas morning.

How do you think online will do in comparison to traditional brick-and-mortar retailers?

Deniger: We believe online retailers will see a modest bump in sales this holiday season versus last year and the competitiveness between online retailers will be greater. The consumer is going to be more cautious and selective this year, which is why the value proposition will be more substantive and offered sooner in the selling season than year.

Bendle: I don't think it's going to be much different from the last few years. We're just marching to a greater percentage of online sales. Online sales are at 5-7 percent now, and research says they will move up to 10-15 percent. We're not seeing any difference in that composition, even though overall sales are down. People are maybe migrating a little faster. Online sales are still so young that you will continue to see growth.

Duong: Online sales will see growth between 10-20 percent year-on-year, and brick and mortar will probably see a decline.

Rutledge: There is no more efficient method for delivery of savings direct from the manufacturer to the consumer than the Woot platform, and our members really help by spreading the word of this. On the other hand, I would hate to be an online retailer without either exclusivity of product or efficient logistics. There is no inherent joy in being an online retailer versus a brick-and-mortar retailer -- you have to excel at offering value to really make a difference in either venue.

Jones: I believe in our segments we will continue to see a strong preference for the online channel by consumers. The value, convenience, and quality of service are far superior to that of big box chains and many specialty stores.

Are you making any technical upgrades to your site for the holiday season, like customer reviews, videos of products, or improved search function?

Deniger: There are always going to be opportunities to improve online organic search visibility, and that's our development team's focus right now. We are working hard to push down our paid advertising spending. Rule No. 1: People have to be able to find your site. We've also invested recently in technology to improve our site's performance and our customers' experience. AVID Commerce has improved our site search, expanded our customer service center, developed customer reviews, customer ratings, cross sell and up sell tools, and a fast, easy shopping cart that has improved sales conversion by minimizing cart abandonment.

Bendle: We've reprioritized our development projects to emphasize value and added an under-$10 gift section. We have a banner ready for the holiday that says, "Thousands of gifts under $10." We're trying to tailor developments to price sensitivity.

Duong: We are going launch a new site with improved search, and better functionality overall.

Rutledge: We have a redesign in the works, but won't launch it until January or February. Our technical implementation is advanced and good to go. Community is at the forefront for us already -- our entire forums are reviews of our items in advance and post-receipt.

What sorts of promotions do you plan on offering, and how do these compare to your offers last year? For example, are you planning to offer deeper discounts?

Deniger: We are increasing the minimum purchase for free shipping, but will continue to be competitive. We'll also offer a variety of bonus and free-gift-with-purchase offers to enhance the overall value proposition our customers receive.

Bendle: We're actually unchanged in terms of promotions. We're always had free shipping over $99. We're not going to change prices, but we're implementing a referral program, where people can save themselves and their friends money. It serves to spread word of mouth.

Duong: We are going to launch some e-mail campaigns that will give buyers 5-10 percent off their purchase. We didn't do this last year.

Rutledge: Everyday, all year long is a "Black Friday" event at Woot.com, and we offer low-cost, fixed $5 shipping regardless of product weight and quantity ordered. Shirt.Woot.com's daily offerings ship free, even on a $10 limited-edition designer T-shirt.

Jones: We will continue to use the standard bag of tricks with free shipping promotions, gifts with purchase, and the use of more coupon codes throughout the season. With the economic fallout, we are working hard to find great deals on closeouts and other distressed inventory that we can make available to our customers at incredible prices.

What sort of marketing efforts are you engaging in? Are your marketing efforts more extensive than last year?

Deniger: Organic search visibility is a high priority, because it has proved to be the most cost-effective means of reaching a targeted "in-the-market-to-buy" customer. Plus, we're doing more joint marketing with our vendors. Carefully crafted e-mails to our opt-in list are also an ongoing part of our larger marketing strategy.

Bendle: We were already starting on social networking sites. We're not going to increase e-mails. Our customers are already seeing a lot of that, so we're staying the same out of respect.

Duong: We're starting an e-mail marketing campaign, as well as shipping inserts. We're not going to dabble in social networking as of yet, although we have spruced up our MySpace page.

Rutledge: We'll send out a newsletter or two and strategically plan events like our Woot-Off back-to-back product blitzes and our "Gift Week" food and gift offerings on wine.Woot.com to match up with our members' holiday buying needs. We'll offer gift certificates for free shirts as a great money saving and smart gift card alternative -- introducing your friends to the business model of Woot is half the fun. Our partnership with Yahoo is going strong and we expect double last year's traffic at sellout.Woot.com as they market their Shopping.Yahoo comparison shopping portal.

Shilo Jones: We are engaging in more or less the same marketing this year as we did last year, which includes, email marketing, SEM, co-op, affiliate and third party sales and always a healthy dose of community development.




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