Shopping Online Could Be Hurt by Economy
High gas prices might be changing the way people commute to work and travel, but retail analysts and merchants are divided on whether the gas crunch will change the way people shop.
A recent survey from Jupiter Research, which specializes in analyzing online sites and their traffic, found that a majority of consumers will not make a shift to shop e-commerce boutiques in the near future, even if it means saving gas money.
Only 21 percent of frequent e-commerce shoppers plan to do more of their spending online, according to a Jupiter survey conducted in March this year for LinkShare, a New York marketing-services firm.
Rather, the survey found many consumers intend to reduce spending overall, said Patti Freeman Evans, a Jupiter analyst in New York. Evans forecasted online spending to decrease by 5 percent during this weak economy.
However, in another survey released by Shop.org, a division of the Washington, D.C.–based National Retail Federation , online consumer spending might stand a chance of increasing. That was the word in a report called “State of Retailing Online 2008,” released in April.
According to the survey, which was conducted by Forrester Research and cited in Shop.org’s report, 85 percent of online shoppers polled said they will spend the same amount or more online in the next 12 months compared with the previous year.
Shop.org Executive Director Scott Silverman said the market for e-commerce would prove to be resilient in these tough times. “Internet sales will be affected this year by high gas prices, a struggling housing market and consumer uncertainty,” he said. “However, since the channel is still maturing, online retail will continue to grow faster than the traditional retail sector.”
According to Shop.org’s study, 6 percent of retail sales in the United States were made online in 2007. Total online sales were $175 billion in 2007 and are forecasted to grow to $204 billion in 2008. By 2013, they should reach $300 billion.
Online sales for apparel, accessories and footwear were $22.7 billion in 2007 and are predicted to grow to $26.6 billion in 2008.
Maintaining margins
The gas crunch has affected e-commerce merchants in different ways. For Glendale, Calif.–based e-commerce boutique HotterThanHollywood.com, rising gas prices and the credit crisis are blamed for consumer traffic dropping 25 percent since early June. “It put a clamp on everyone’s wallet,” said HotterThanHollywood co-owner Mary Helen Shashy.
Conversely, sales for Santa Barbara, Calif.–based e-commerce boutique BlueBee.com have steadily increased in the past year, according to Marty Bebout, co-owner of the boutique’s parent company, Blue Bee Inc. He said his Web site’s free shipping and stylish fashion assortment have helped draw people to the site. He believes his business has not yet been influenced by gas prices yet.
Even if high gas prices steered more consumers to shop online, the profit margins of e-commerce boutiques might be threatened by increased shipping rates and competition to offer major discounts for online shoppers.
E-commerce retailers compete for consumer traffic with aggressive promotions, said Tanya Zilinskas, owner of San Francisco–based online store Maneater Threads (www.maneaterthreads.com). These retailers run the risk of whittling down their margins with promotions, she said.
Online promotions are often generous. On July 15, the Bloomingdale’s Web site (www.bloomingdales.com) offered $100 gift cards for online purchases ranging from $250 to $499. JCPenney’s e-commerce Web site, www.jcpenny.com, recently offered 20 percent to 50 percent discounts in a Back-to-School sale.
Increased shipping costs also are cutting into e-retailers’ margins. In May, prices for the U.S. Postal Service’s Express Mail increased 3.1 percent and its Priority Mail increased 4 percent. HotterThanHollywood’s Shashy said her shipping costs have risen 15 percent over the past year. She estimates her boutique spends $120 a day to ship goods. Shipping woes are compounded because many e-boutiques are offering free shipping to make their services more appealing to consumers. “If your clients use your free-shipping policy to make returns, you’re not going to break even,” Shashy said.
While the economic blows from gas and the credit crisis are making busines ses suffer, the gas crunch might benefit e-tailers during the 2008 holiday season, said Fraser Ross, owner of Kitson, a high-profile Los Angeles boutique. Ross also owns www.shopkitson.com.
“People are not going to run around town because of gas prices,” Ross said of shopping during the 2008 holiday season. “People will go to Web sites where they will be able to buy multiple products.”
If merchants and analysts are divided on whether gas prices will direct shoppers to e-commerce sites, a few shoppers said they are content to bounce between e-commerce and bricks-and-mortar stores.
San Diego–based resident Lara Dean said she buys her fashion at stores and e-commerce sites such as Karmaloop.com. But she only goes to e-commerce stores after exhausting her store options. “I go to e-commerce boutiques when I can’t find what I want in stores. [E-tailers] often have better selections,” she said.
Other consumers said increasing gas prices have nudged them to more e-commerce shopping. Erin Stafford is an image consultant in Costa Mesa, Calif. In the past month, she has seen her gas bills rise from $30 for a tank of gas to $50 a tank for her Toyota Scion TC car. The increasing bills have made her more conscious about saving gas. She estimates she has increased her online purchases by 30 percent in the past month. In addition, shopping at her computer can be more relaxing. “After a day of work, getting into my car is exhausting,” she said.
