Christmas 1999 has been hailed as the first e-Christmas. With up to &£1.3bn likely to be spent online, the dawn of the new e-retailing era is dependent on its success. It’s not just a question of encouraging shoppers into cyberspace, but whether retailers can deliver on time, says Tom O’sullivan
We are about to experience our first e-Christmas. It will be the first time spending through e-commerce registers on the spectrum. Last year, it was too small to be meaningful, but 1999 will go down as the time that e-commerce came of age.
And it is not just toys – books, CDs, videos, computers and even the Christmas dinner will be available online to a substantial number of people with access to the Internet or interactive TV.
But it is not simply the willingness of consumers to spend online which is on trial. This will be the most intense period of buying we have yet seen in cyberspace – about &£1bn will be spent by people in the UK sitting in front of computer or TV screens over the next seven weeks. Questions are already being asked about whether online retailers will be able to deliver on their promises at a time when they will face greater pressure than ever before.
The answer to that question will have an impact not just on the Christmas online market, but on the whole principle of buying anything in cyberspace.
As one retail analyst says: “The big question people will ask e-retailers is, can I trust you to deliver my children’s Christmas presents on time? If consumers can’t trust them, or if they do trust them and the retailer fails to deliver, that will severely damage e-commerce.”
Coping with demand
The nightmare scenario would be for too many people to take up the option of online buying, leaving “e-retailers” unable to cope with demand and failing to distribute the products in time, leaving “little Johnny” without his present.
“The key to online shopping is fulfilment,” says Verdict Research chairman Richard Hyman. “It is easy to have great screens and Websites, but it is delivery that counts and that is where companies will fall down. Many are too focused on the front end of the equation and not so skilled in back-end delivery.
“For online retailers which have the infrastructure to deliver, this will be an important time. They will be able to establish a base of loyal customers – but others will blow it. And the consumer view of online shopping and the Internet will be affected by that.”
The point is echoed by the retail analyst quoted above. “Some [purely e-commerce] companies don’t have an extensive infrastructure in the UK. If they get a wave of orders, will their IT be able to cope and will they have enough trained staff? Will they be able to deliver?
“If you say something will arrive within two or three days, then it has to arrive. But if e-retailers have a great Christmas that will be a significant indicator of things to come.”
From toys to turkeys the total bill for Christmas this year will be &£42.9bn, an increase of 4.8 per cent on 1998, according to Verdict. That is the equivalent to every man, woman and child in the UK spending more than &£700 each in just under two months.
It is the sort of figure that excites retailers, knowing that this is the period which dictates their financial performance for the year to come. Fifty-five per cent of turnover for toy retailers (excluding computer games), for instance, will be generated in the next seven weeks.
This time around e-retailers are expected to grab between two and three per cent of that &£43bn market – somewhere in the region of &£860m to &£1.3bn. The bulk of purchases will be made by men aged between 25 and 40 in the AB social categories. But in 12 months’ time, with Internet access growing and interactive TV – already 1.8 million people have access to Open through SkyDigital – the complexion of those doing the purchasing will change dramatically.
“It is difficult to quantify with any accuracy the impact the e-retailers will have this Christmas. But it is fair to say that this will be the first time there has been a concerted effort by the electronic retailers to grab a share of the market,” says Hyman.
To grab that share they are advertising and marketing themselves more than ever before – both online and to the wider public. Fletcher Research expects a “substantial” rise in the number of Christmas advertisers online compared with last year.
Jungle.com launched on August 30 to sell computer software, music, videos and games online. But only three months after launch it is upping its marketing budget from a planned &£7.5m to &£10m, following a meeting with its investors, 3i, last Friday, about exploiting the Christmas market.
“We are seeing the first marketing campaigns to encourage people to buy online,” says a spokesman for the British Retail Consortium. “But as for it being the first e-Christmas I think that is a little further away. It is a growing and important market.”
Jungle.com founder Steve Bennett admits that he underestimated the growth of the company – the customer services department, for instance, has grown from three to 40 people in less than three months, servicing about 1,000 orders a day, with an average value of &£50. It will add electrical equipment to its stocklist later this month.
But does this massive growth support the argument that some e-retailers will not be able to cope with a Christmas rush?
“Everybody is racing to open Websites but 97 per cent of being an online retailer is about fulfilment, the vendor funding of marketing campaigns and customer service,” says Bennett. “If they have done proper deals with their partners they should not have any problem. This will be the first e-retailing Christmas where there will be big turnover figures – but it will only equate to between two and three per cent of the total spend.”
Christmas should lend itself to shopping in cyberspace. The majority of the population is compelled to spend and is under significant time pressure to make those purchases, a fact which is reinforced by Verdict’s research which predicts &£26bn will be spent in December alone. In that sense online retailing has a greater attraction at this time of year – quicker, relatively hassle free – than just about any other.
The battle for consumers is perhaps most visible in the toy market where an estimated 55 per cent, or &£800m, of the retailers’ annual turnover will be generated in the next seven weeks.
In the past fortnight, two ventures have been launched in the UK to exploit the Christmas market and add to the already fierce competition. The US company eToys has brought its business to the UK, which will act as a central co-ordinating point for its European expansion. Toyzone, part of the Kids Play Factory group, has launched in direct competition in cyberspace but also with stores at Granada motorway services.
So are the traditional “terrestrial” toy retailers anxious?
No, says the British Toy Retailers Association, which includes Toyzone and eToys as members. “Half our terrestrial retailers are also in cyberspace and many are saying that this will be the best year for some time,” says association secretary Gerald Masters. “It is all part of toy retailing – our members are used to competition wherever it has come from.”
But other retail sources are less convinced.
“There are one or two retailers which are publicly doubting whether the e-retailers will be able to deliver on their promises but are privately very worried about having their margins squeezed.
“At the back of their minds – but not too far back – some retailers are already planning to blame the impact of ‘e-commerce’ if they have a bad Christmas,” says one retail source.
As Masters says, there is a huge overlap between the so-called terrestrial retailers and their cyberspace rivals. Many traditional store groups have a large presence on the Net and, in the case of Dixons, Woolworths, WH Smith and others, also on interactive TV, through the BSkyB-backed Open which went live on October 12. They see electronic media as complementary to their bricks and mortar retail outlets. They too, are promoting the opportunity to buy online this Christmas.
“Nobody can stand up and say we will continue to sell in exactly the same way that we have always done – we all need new channels to market,” says Dixons director of corporate affairs Lesley Smith. “It is highly visible and everybody will be able to see the impact if [e-retailers] do not deliver.”
Jungle.com, boo.com and eToys are among those non-traditional e-retailers with the most to gain this Christmas. “They are the ones looking for a win,” says Dylan Schlosberg, who runs Ybag.com, a company launching in January as a broker or matchmaker between smaller retailers and consumers. “There is an argument to say that not all the retailers in cyberspace will be able to cope with demand if it comes, and that would be damaging for e-commerce. But I am not yet sure that demand will be that high this year, except for the likes of eToys.”
By the year 2004 Verdict Research estimates that nine per cent of all retail business will be done from the home, including mail order – an estimated &£22bn a year. Christmas 1999 will be a key determinant of whether that target is reached.