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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 Shop.org, 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 Amazon.com 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."



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