Growth of Online Retailers Makes Internet the New Shopping Battleground

While online retailers have celebrated the growth of online shopping, conventional retailers determined not to lose customers have been ramping up their Internet efforts.

Forrester Research Inc. (NYSE: FORR) estimates that online shopping will increase by 15% to $59.5 billion this holiday season. And more Americans said they were planning to shop online yesterday, "Cyber Monday," this year - 122.9 million, according to a survey conducted by BIGresearch for, up from 106.9 million in 2010.

Cyber Monday spending last year exceeded $1 billion for the first time.

"Last year [Cyber Monday] was the biggest day of the year, and as retailers know that, they compete," Mitch Spolan, senior vice president for national sales at LivingSocial, a daily deal Website that had set up offers with over a dozen retailers, told The New York Times. "It's a sport. We're expecting a record-breaking day."

In an environment of weak consumer spending, retailers of all kinds need to fight for every dollar.

This year online retailers encroached on Black Friday, the traditional day brick-and-mortar retailers launch the holiday shopping season, while conventional retailers returned the favor on Cyber Monday.

Black Friday online sales were up 26% over last year according to comScore, while the number of people visiting online retailing sites was up 35%. Meanwhile, foot traffic in stores was up 5.1% and overall retail sales were up 6.6%.

The robust turnout helped markets soar on Monday, with the Dow Jones Industrial Average climbing 291 points, or 2.59%, to close at 11,523.01.

"With brick-and-mortar retail also reporting strong gains on Black Friday, it's clear that the heavy promotional activity had a positive impact on both channels," comScore Chairman Gian Fulgoni told Reuters.

An Edge for Online Retailers

Nevertheless, Web-only retailers, led by the titanic Inc. (Nasdaq: AMZN), have experienced more growth and have several advantages over their conventional rivals, even though most, such as Target Corp. (NYSE: TGT), Wal-Mart Stores Inc. (NYSE: WMT), and J.C. Penney Company Inc. (NYSE: JCP) have embraced online retailing themselves.

The most significant advantage Web-only retailers have is the lack of overhead expenses to maintain large numbers of physical locations. Web-only retailers also don't collect state sales tax unless they have a physical presence in that state.

And online retailing, despite its rapid growth in recent years, still accounted for just 4.6% of total U.S. retail spending as of the third quarter, according to the U.S. Department of Commerce. That means online retail has huge potential to keep taking an ever-larger slice of the consumer spending pie.

As a result, the Web-only retailers have become formidable competition, particularly during the critical holiday shopping season, which is make-or-break for many retailers.

"Web retailers are better-positioned than store retailers," Forrester analyst Sucharita Mulpuru told Bloomberg News. "They in many cases can have better offers because their economics are more favorable."

Going Mobile

Another, even more recent twist to online retailing is the rise of mobile commerce - people using their mobile devices to research products and shop online.

Unlike online retailing, where brick-and-mortar stores are usually at a disadvantage, mobile commerce offers some hope to those that embrace it by enabling customers to use their devices to comparison shop while in the physical stores.

In some cases, consumer research could even draw customers into stores to get a good deal or hard-to-find product.

"That's a big deal for retailers, after so many years when the Internet has been driving consumers away from stores," Cyriac Roeding, CEO of Shopkick, which makes a location-based mobile shopping app, told Reuters.

Brick-and-mortar stores that have jumped on board with in-store mobile capabilities include Lowe's Cos. Inc. (NYSE: LOW), Best Buy Co. Inc. (NYSE: BBY) and Toys R US, Inc. Lowe's distributed 42,000 Apple Inc. (Nasdaq: AAPL) iPhones to employees so they could assist customers.

"Retailers are waking up to the fact that shopping is changing very rapidly. Some wish that weren't true - they would like to ban smart phones in their stores," John Donahoe, CEO of eBay Inc. (Nasdaq: EBAY), told Reuters. "But others are embracing it. They have got to get to where consumers are making their decisions."

Other conventional retailers, like J.C. Penney, were among the first to create mobile versions of their Websites to make it easier to shop with a smartphone or tablet.

Who Will Prevail?

With the online retailing wars in its early stages, and the technology driving it evolving rapidly, winners are not yet easy to spot.

Apart from Amazon, many of the Web-only companies are small and struggling, although a few look promising even now: PetMed Express Inc. (Nasdaq: PETS), VistaPrint Limited (Nasdaq: VPRT) and Inc. (Nasdaq: FLWS).

Of course, there are more imaginative and generally less risky ways to invest in the growth of online retailing.

For example, several companies, such as Akamai Technologies Inc. (Nasdaq: AKAM), eGain Communications Corp. (Nasdaq: EGAN) and Keynote Systems (Nasdaq: KEYN) provide services to online retailers, be they of the Web-only or the old-fashioned variety.

One thing's for sure: the Internet has changed retailing forever, and only those that figure out how to harness the new technology to give them the edge in the marketplace will thrive.

"The shopping experience is in the consumer's hands and you can't fight where they're going," Gihad Jawhar, vice president of the Lowes Website, told Reuters. "Retailers can either hop on the bus or get left behind. We are choosing the first option."

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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