October 11, 2005
eCommerce shopping sites are getting a lot of help from higher fuel
costs for gasoline and diesel, which is increasing the number of
online shoppers to use their personal computers instead of driving
their cars or SUV's to a traditional shopping mall.
While fuel costs
have slightly decreased from their summer peak levels, prices at the
gas pump still remain at more than $3 a gallon in much of the United
States, with low inventories likely to keep them high enough throughout
the Christmas and holiday season.
"There's still going to be a lot of talk about Christmas shopping being hammered because of higher fuel prices, but we're saying, 'On the contrary,' " said Shmuel Gniwisch, chief executive of the online jewelry store Ice.com. "Our sales will increase."
Mr. Gniwisch said he expected sales on his site this holiday season to jump by more than 40 percent over 2004, partly because Ice.com has extended free shipping to all purchases instead of just orders exceeding $150. The new policy, he said, is aimed at snaring "the fence-sitters: people who've been coming to the site and looking around without buying, and there are a lot of them out there."
A lot of them are getting off the fence and going online to escape the $100 fill-up, analysts say. In a recent survey by Shopzilla, a unit of E. W. Scripps that compares Web prices, 40 percent of Internet shoppers said they had increased their Web purchases to save on gas.
Over all, online sales are expected to rise about 22 percent in the final three months of this year, to roughly $26 billion, according to eMarketer, a research firm. That compares with a 24 percent increase in the fourth quarter of 2004, to $21.5 billion.
Store sales, by contrast, are expected to increase by 5 percent, according to the National Retail Federation, though at $435 billion, they will still dwarf Internet buying.
Though the divergence in the rates of increase isn't surprising, high gas prices are accelerating the trend, said Donna L. Hoffman, a professor of marketing at Vanderbilt University. "It won't necessarily bring in more people to shop online, but it will bring in people more often," she said.
Even Web sites that charge $5 for all shipments are unlikely to discourage shoppers, she said. "People will do the mental math, and say, 'If I go to the store, how much will it cost me, and how much is my time worth?' " she said. "Five dollars isn't much to pay."
To be sure, Web merchants that offer free shipping will have to bear the extra cost, which is considerable. U.P.S. and FedEx currently impose a 3.5 percent fuel surcharge on ground shipments, and plan to raise it to 4.5 percent next month and perhaps bump it up again in December.
But Ms. Hoffman said she believed that merchants can easily swallow the extra expense, either by raising prices in categories like apparel and home furnishings where consumers will not notice or by increasing volume for products like electronics and music where buyers can use shopping-comparison engines to resist price increases.
Besides, she said, with 10 years of experience behind them, Internet retailers are running their operations more efficiently and more profitably than ever.
Now is the time to put that business savvy to good use. In years past, some merchants who got behind on their holiday shipments resorted to free expedited shipping in the final days before Christmas, in an effort to stay on the good side of customers (not to mention the Federal Trade Commission). If they find themselves playing catch-up this year, it will cost them dearly. The U.P.S. fuel surcharge for expedited deliveries is 12.5 percent, while FedEx charges 15.5 percent.
At the very least, consumers can expect to hear lots of noise from Web merchants in the weeks ahead about how much more sense it makes to shop online than at stores. "I'm sure you'll see us weave this into our promotional copy," said Lauren Marrus, chief executive of ChelseaPaper.com, a New York seller of paper products.
As the holidays approach, Ms. Marrus said, ChelseaPaper's e-mail advertisements will promote free shipping, an annual tradition. Even so, prices will hold firm, she predicted. "The fourth quarter is a time when we don't like to do anything new," she said.
Although Shopzilla and Shop.org, an industry group, said last week that 79 percent of Internet retailers would offer some form of free shipping this year, some executives are not sure they will join in. Matt Hyde, the senior vice president for merchandising and logistics at Recreational Equipment Inc., says that if competing sites do, REI.com could follow their lead, but otherwise the company would prefer not to incur the extra expense.
In any case, REI.com plans to save millions of dollars a year in shipping costs when it opens a new distribution center in either Pennsylvania, Virginia or West Virginia in early 2006, Mr. Hyde said. Then, instead of driving packages for three days to Eastern states from REI's warehouse in Sumner, Wash., the company's trucks will make the trip in an average of 36 hours.
Higher fuel prices, meanwhile, are showing up in other unexpected places on REI.com. Plastic kayaks, which are made using a petroleum byproduct, have gone up in price compared with last year, Mr. Hyde said, "And synthetic fabrics are seeing some price pressure, but because the fabric is such a small component of the overall price of the product consumers won't see that much increase."
The recent shift in attitudes about gas guzzling is also having an effect on REI.com's fortunes. "Bike sales have been so strong this year that it's hard to see the additional spike, but all our bike accessories that are related to commuting are up about 30 percent above the trend," Mr. Hyde said.
That is probably a good omen for all online merchants. Even if the new biking commuters stop off at the mall on their way home from work, there is only so much they will be able to load into a wire-mesh basket.
Source: NY Times
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