It looks like the woes that had already befalled brick-and-mortar retail may have finally befallen online retailers. According to comScore, e-commerce sales in the first 23 days of November declined 4% from the same period last year.
By comScore’s count, in 2007, $8.51bn in sales occurred online in the first 23 days of November. That dropped to $8.19bn this year. A drop of this sort during the holiday season is an unprecedented event in the world of online retail.
comScore chairman Gian Fulgoni commented on the news:
“With consumer confidence low and disposable income tight, the first weeks of November have been very disappointing, with online retail spending declining versus year ago. It’s also likely that some budget-conscious consumers are planning to wait to buy until later in the season to take advantage of retailers’ even more aggressive discounting.”
comScore now forecasts that online retail spending in November and December will be flat compared to last year. When one considers that the growth rate in November-December 2007 as compared to November-December 2006 was 19%, it’s quite clear that e-commerce is experiencing its first fundamentally difficult period.
But is the news really all that bad?
Given the substantial pain that offline retail has experienced lately, a 4% drop in online spending in the first three weeks of November is hardly as bad as it could have been.
And given the fact that one would never expect online retail to be completely immune to the economy at large, the drop in spending is not entirely surprising. To put it differently, it would be quite surprising if online retail kept growing at a rapid pace while every other part of the retail market was slowing down dramatically.
Obviously, we shouldn’t fool ourselves – the troubles retailers (both offline and online) are facing are very worrisome. Many economists are predicting a recession that is both deep and long. Such a recession would inevitably take its toll on every individual and every business – some more than others, of course.
Yet if there’s any good news, it’s this – online retail has matured considerably over the past several years. The top online retailers run their businesses well and have been bottom-line focused for some time. In other words, online retailers on the whole should be in better shape than many other companies in other segments of the internet economy.
And there might even be good news in the form of Black Friday. Early data shows surprisingly strong offline sales, which is not entirely shocking given the unprecedented bargains many retailers offered to lure shoppers out of their slumber.
Of course, such bargains will likely dent margins but if Black Friday sales were as strong as seems to be the case right now, it means that many consumers still have some disposable income (or available credit) and are still willing to spend when made an offer they can’t refuse.
Although online sales usually peak in December and Black Friday has not historically been the biggest shopping day of the year, due to the economic situation, many retailers (both online and offline) ran Black Friday sales the likes of which haven’t been seen (at least in my short lifetime).
Heavy traffic took down Sears.com completely, Kohl’s and Saks had performance issues and even Amazon.com and some of its partners experienced a minor slowdown according to Keynote Systems. Hopefully all this traffic was not for naught and browsers were doing some buying as well. And with today being Cyber Monday, the online window shopping and buying is unlikely to be over.
Whatever the case, at the end of the year, I think some perspective is in order and it’s safe to say this – if online retailers manage to end the last part of the year with flat sales, there will be a lot of businesses in a lot of markets that wish they could say the same.