Report: Holiday E-tailers To Lose $200M

Even though more Americans than ever before will be buying online this holiday season, a new report from International Data Corporation (IDC) predicts that many U.S. e-tailers will experience million dollar losses.

The Framingham, Massachusetts-based research firm says the big winners this year will be companies that provide services and logistics to e-tailers. IDC said those firms are “poised for explosive revenue growth.”

Still, according to Jim Williamson, senior analyst for IDC’s Internet Economy research program, “the reward for going through the trouble of picking, packing, and shipping millions of holiday packages from expensive warehouses will be $200 million (US$) in aggregate losses for the online retail industry.”

Forecasts Vary

IDC is predicting that online holiday shoppers in the U.S. will spend $12 billion this year.

Other holiday spending predictions range from $9 billion by the Yankee Group to $12.5 billion by eMarketer.

Although $200 million in aggregate losses is impressive, IDC said that figure masks the “staggering losses” that some e- tailers will sustain during the holiday season.

IDC’s research indicates that e-tailers who are unable to satisfy consumers will collectively lose $700 million, while e-tailers who keep customers happy will turn a joint profit of $500 million.

Delivering the Goods

According to the research firm, the successful companies will be those that offer in-store returns and have improved their logistics infrasructures to avoid the delivery problems of the 1999 holiday season. Seven e-tailers, including Toysrus.com and CDNow, failed to deliver holiday packages on time in 1999 and were fined a total of $1.5 million by the U.S. Federal Trade Commission (FTC).

IDC is not the first firm to predict that e-tailers who do not keep customers happy will lose big this holiday season. A report released earlier this month by Creative Good predicted that e-tailers will lose almost $15 billion in sales during the holiday shopping period unless they improve the online shopping experience.

Another study by BizRate revealed that the average online shopper abandoned two or three Web shopping carts over the last 90 days, each representing lost sales of $175.

Improve or Else

There are signs, however, that e-tailers are taking action to improve customer service. An earlier survey by IDC forecasted that the percentage of business-to-consumer (B2C) sites that offer interactive customer service will increase a whopping 110 percent this year — from 21 percent in the spring of 2000 to 41 percent in spring 2001.

Although the survey asked what changes B2C companies would be making before spring 2001, IDC researcher Molly Upton told the E-Commerce Times that many of the companies surveyed said they hope to put the finishing touches on improved customer service features in time for the holiday season.

Offering customers online order tracking is fast becoming a high priority. IDC found that the percentage of sites with this capability is expected to reach nearly 40 percent by early next year.