Having an E-Christmas
Online retailers gear up for record holiday sales

Yes, it’s true – the holiday shopping season is already upon us. This one promises to be the first genuine example of rollicking Yuletide e-commerce we have encountered. Not only are the many retail dotcoms gearing up for what they believe will be outstanding revenues based on the current online user population, it appears that they will benefit from a significant increase in the number of online users that happens to be coming at just the right time. Moreover, this increase will also change the overall demographics of web use, aging it quite a bit and giving the e-commerce marketing folks some new challenges to face.

Interestingly enough, e-commerce sales stayed steady in the first quarter of this year, matching the 1999 holiday sales during the slowest time of the year for retailers. And the $5.5 billion recorded in the second quarter of this year represents a five percent increase over the first quarter. While that kind of growth is impressive, it pales before what is to come. A report published last month by the Gartner Group estimates that seasonal holiday sales in the U.S. will top out at around $10.7 billion, doubling the amount spent last year and the earnings of any quarter this year.

Hopefully, this year’s increased sales will also result in more customer satisfaction and good will for the dotcoms, many of whom were woefully unprepared for what turned into an unmanageable deluge of orders last year. Despite the fact that the orders filled were only half of what is expected this year, many e-tailers saw their delighted anticipation turn into frustrated chagrin as their servers were overwhelmed with transactions and the flaws in their warehouse and distribution systems were exposed. A number of companies have spent the last year upgrading their equipment and implementing or refining real-time inventory systems.

Such has been the experience of one of the largest and best known of the e-tailers, Amazon.com. The Seattle-based company is the world’s largest online retailer of books, music and movies. Its projected revenue for the upcoming holiday season is about $1 billion, or almost one tenth of the total that will be spent. The local twist arises from the fact that Amazon established one of its warehouses in Campbellsville last year and its eighth warehouse will finally open in Lexington this month, after a year’s delay.

Despite the rosy revenue projections, Amazon.com is simply awash in a sea of red ink, its financial troubles the best-publicized of all the numerous e-commerce nightmares. In the last year its stock price dropped to about a third of its former value and the company has never even come close to recording a profit. Industry analysts criticize the company for mismanaging its warehouse and distribution system and for over-aggressive start-ups in such areas as tools, electronics, toys and kitchen products and appliances.

As long as the company retains its core markets, however, the Lexington warehouse should be safe. Amazon chair and CEO Jeff Bezos says that his “mature” businesses are doing well and the ratio of mature to new businesses is growing. The businesses he deems mature are his book, music and movie businesses, which are the very products that the Lexington warehouse is slated to distribute. These three areas, taken alone, showed a $10 million profit in the second quarter of this year. Bezos is confident that Amazon’s new business endeavors will mature as well, especially as he plows the growing profits from his mature businesses into the new ventures.

John F. Clark is an assistant professor of telecommunications in the University of Kentucky School of Jornalism and Telecommunications
johnclark@lanereport.com

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