Survey: 2008 Holiday Sales Slipped for Many Internet Merchants

For the first time in years, holiday ecommerce sales fell in 2008 as online shoppers, apparently worried about the global economy and their personal finances, cut seasonal spending 3 percent, according to an established Internet tracking firm. But 47.7 percent of Internet store keepers responding to a recent Practical eCommerce study actually had better sales than last year, perhaps indicating that many small online stores outperformed the large multichannel sellers.

A report from comScore, said that total retail ecommerce sales from November 1 to December 23, 2008 were $25.5 billion, down from $26.3 billion for the 2007 holiday shopping season. Separately, an exclusive Practical eCommerce survey did find that approximately 40 percent of online retailers had fewer sales for the recent Christmas season. But 33.8 percent of those surveyed experienced sales growth of more than 10 percent for the period. An additional 6.2 percent and 7.7 percent of respondents said their stores’ sales grew about 5 percent and about 10 percent respectively. Combined this means that 47.7 percent of the store’s surveyed had better 2008 Christmas sales than they had in 2007.

Did Sales Migrate to Smaller Retailers?

In light of both the comScore and Practical eCommerce findings—and the seemingly contradictory conclusions—there are a few possible ways of reconciling the data. First, it is possible, if not likely, that some large multichannel retailers suffered greater than a 3-percent decline in online sales, making room for growth at smaller ecommerce retailers.

As evidence, comScore also reported that web traffic at several large merchants feel significantly. For example, Circuit City’s website had 21 percent fewer visitors from December 1 to December 24, 2008 than it had for the corresponding period of 2007. Overstock.com saw visitor traffic fall 16 percent for the period, and JCPenney’s sites suffered an 11 percent drop in web visitors. Given the known relationship between site traffic and site sales, it may be the case the these stores had online sales that were much lower than the 3-percent decline the overall market endured.

JCPenney generates perhaps $1 billion in annual online sales, so that even a 3-percent dip in holiday sales creates more than enough room in the market for smaller operators to grow.

Furthering this hypothesis is the fact Practical eCommerce serves relatively small online merchants with annual sales of less than $10 million. The difference in the size of the retailers that comScore polled and the size of the retailers we polled here are Practical eCommerce could fully explain the seemingly different experiences that each survey’s respondents reported. Smaller ecommerce companies may be beating the market.

Implications About Brand, Email, and PPC Advertising

If it is true that smaller web retailers, particularly those with annual sales below $100,000, are bettering the large and established retail juggernauts , there may be some interesting implications for Brand value, email marketing, and pay-per-click advertising (PPC).

Brand value represents the sales a store generates simply based on name recognition. For example, Victoria’s Secret, whose glamorous and beautiful lingerie models have made the company popular with both men and women, would, in fact, continue to sell product for several months or more even if it stopped all forms of advertising and market. Generally, small retailers do not have even a small portion of the brand value that large retailers possess. If small merchants did improve sales in 2008, it may mean that brand value has less value in a tight economy—unfortunately price might be king.

Next, although both large and small advertisers use email marketing to promote holiday sales, strong performance from merchants with sales below $10 million may indicate that email marketing is actually a leveler. Since customers must agree to receive emails (see the CAN-SPAM laws), smaller merchants can use the tool to compete with much larger stores. In fact, 65 percent of the respondents to our aforementioned survey said they used email marketing to promote their products during the 2008 holiday sales season—more than any other marketing tactic.

Likewise, PPC advertising also seems to be agnostic to store size. Some 60 percent of store’s responding to our survey purchased PPC ads this holiday season, potentially showing up right next to similar ads from much larger competitors without being over shadowed.

Still an Off Year

The possibility that smaller online stores may have done better than the larger operators is a very bright spot in any otherwise down year for ecommerce.