U.S. retailers are learning an important lesson this holiday season.
And it has nothing to do with the prices they set for Barbie dolls, video games or HDTVs.
The lesson being learned is that the successes of future Black Fridays won't be solely keyed to "door-busting discounts," or luring shoppers to stores at 3:00 a.m. In fact, as this year's Cyber Monday proved, U.S. consumers like to shop online. And that means that the merchants with the most enticing deals and most convenient Web sites will win the race for the dollars that U.S. shoppers drop on their online purchases.
Cyber Monday, the Monday after Thanksgiving – and a day in which bargain-hunters follow up their weekend shopping by taking advantage of Internet-only deals – experienced a sales increase of 20% this year over last, according to research firm Coremetrics.
"The consumer is shopping online in a pretty aggressive way this holiday," Scot Wingo, chief executive officer of ChannelAdvisor Corp., which helps retailers sell through online marketplaces, told Internet Retailer.
This year, online shoppers got to enjoy deals starting much earlier than Cyber Monday. Shoppers spent a whopping $1.1 billion online on Thanksgiving Day and Black Friday combined, and online retail sales for the month through Nov. 26 were up 13% from last year, reaching $11.6 billion, according to marketing researcher comScore Inc. (Nasdaq: SCOR).
The surging Internet sales results "put the retailers on notice that consumers are choosing to buy online in ways that we have never seen before," Fiona Dias, the executive vice president of e-commerce company GSI Commerce Inc. (Nasdaq: GSIC), told The Wall Street Journal.
Although Black Friday and Cyber Monday aren't the biggest days each year for online sales, the increase in Internet sales on those two days underscores that there's a new U.S. consumer to market to – a consumer who is comfortable with technology and who values convenience, as well as low prices.
Steve Nave, the general manager of Wal-Mart Stores Inc.'s (NYSE: WMT) Web site, said online sales were up "dramatically" over last year's Thanksgiving weekend. Target Corp. (NYSE: TGT) saw its online traffic jump 9% on Black Friday alone. J.C. Penney Co. Inc. (NYSE: JCP) said its Black Friday online traffic increased 500% from last year – causing Web site slowness for a short period during the day.
Online-only retailers really experienced big gains. Accessories Web site eBags.com reported Cyber Monday sales were up 51% by Monday evening. Zappos.com had to expand its warehouse to keep up with orders and added hundreds of employees last week to handle the online shopping frenzy.
As retailing sees its new future unfold, retailers are starting to invest in Web site makeovers to appeal to the new online shopper through social media campaigns and product cross selling.
"We invested in a site redesign in 2010 with a goal of making the site more engaging, improving search and navigation, and streamlining checkout," said a spokeswoman for jewelry retailer Ross-Simons. "Since we launched the new site in October, we've seen a significant increase in new visitor conversion rates."
It's likely that the biggest online sales day of the year is still to come – closer to deadlines for Christmas delivery before the new and wildly popular free shipping marketing campaigns can expire. So analysts expect retailers to pay more attention to their Web sites and to online deals than to their brick-and-mortar storefronts and in-store promotions.
This growing shift to online shopping prompted last week's Money Morning "Question of the Week:" Is appealing to online shoppers the key to U.S. retailers' survival? Have Black Friday and Cyber Monday taught us that an online marketplace is the future's shopping center? As a consumer, would you benefit or suffer from this shift away from in-store shopping? As an investor, will you look to profit from online retailer stocks?
The following reader responses highlight the consumer shift to online shopping, and predict what might be in store for the brick-and-mortar merchants.
Most Brick-and Mortar Merchants a Dying Breed
I am certainly doing more shopping online, and less in stores, but there is certainly a place for both.
Most grocery shopping is still done in grocery stores, while purchases of electronics, appliances, books, etc., have mostly moved online, at least speaking personally. And I don't care much what "brick-and-mortar" retailers do, their Web sites will have a hard time competing with their online equivalents if they have to pay the costs of keeping the stores open out of online revenue. If I want to go to a Walmart, I go to a store, not to their website. But if I want a book, I go to Amazon.com, not the Borders or Barnes & Noble Web sites (or stores).
For things that I need either quickly or that don't make sense to ship, I expect local retailers to continue in business. This includes such businesses as grocery stores, home improvement stores, and hardware stores (when I need something from a hardware store, I usually need it right now!). It seems to me that any retailer (brick-and-mortar) that doesn't have a good moat around much of their product line, such that online retailers can easily poach their customers, is headed for oblivion. Moats can include such things as urgency, shipping costs, and the desire of the customer to inspect the specific goods before purchase, but absent some compelling reason to buy from a physical store, more and more people will be shopping online.
Even if the economy continues to pick up (a big if in my opinion), I think that a lot of existing retailers are in their terminal stages, and I'm not convinced that there are any avenues open to them to avoid going out of business.
– Gordon F.
The Converted Online Shopper
I bought my first computer a few of months ago at age 44 and have spent many thousands of dollars since as it is so easy (too easy) to find anything on the Internet. I even found my new car on the Web. I used to go to the malls a lot, but no more.
Online Much Easier
As a busy father I'd rather do online shopping unless it's something I'm unfamiliar with and need to try out. If I have to choose between a store that has a Web site or one I have to drive to, I'm much more likely to just shop online for ease and convenience, and to compare prices.
I still like to run to the store occasionally, but I probably shop for 75% of things online nowadays. And I have definitely searched for products in-store on my iPhone if I think it might be cheaper somewhere else.
– Andy B.
[Editor's Note: Thanks to all who responded to last week's "Question of the Week" regarding online shopping.
Be sure to answer next week's question about the proposed tax deal: How do you feel about President Obama's proposed tax deal? Was it a shrewd maneuver, or did he cave to Congressional Republicans? Will it help or hurt the U.S. economy? How will it affect you and what – if anything – would you like to see changed in the proposed tax bill?
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Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at firstname.lastname@example.org. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning:
Brick-and-Mortar Retailers Moving Business Online as Foot Traffic Declines
- Money Morning:
Cyber Monday: The "Online Black Friday" Signals Shift in U.S. Holiday Shopping Trends
- Money Morning:
U.S. Retailers Hoping Black Friday Sales, Smartphone Apps Fuel Strong Holiday Shopping Season
- The Wall Street Journal:
'Cyber Monday' Sales Show Strength
- The New York Times:
In a Holiday Indicator, Retailers Say Online Sales Remain Strong
- Money Morning News Archive:
Question of the Week Feature