Let's face it: 2001 was probably one of the worst business years in recent memory. Most e-tailers in the United States experienced lower-than-expected revenues, layoffs and an overwhelmingly negative business climate. And in September, an already bad situation worsened with the terrorist attacks at the World Trade Center and the Pentagon.
"The negative impact the terrorist attacks had on the economy could significantly slow spending in the retail sector as a whole, which could also inhibit sales growth during the holidays for online retailers," says Heather Dougherty, a retail analyst at Jupiter Media Metrix in New York City. But the year isn't over yet. You may still be able to squeeze a little profit out of 2001.
24% is the percentage per year the U.S. network security sector is expected to grow between now and 2005. SOURCE: IDC |
Many online companies lost a lot of money during the past two years because they didn't have their online operations-including customer service and back-end fulfillment departments-ready when the holidays hit. You simply can't afford to allow that to happen again this year. After all, there will be some money to be made over the next few weeks. The latest figures show that e-commerce sales overall have actually grown since last year.
Although the terrorist attacks temporarily interfered with online retail sales, purchases have since gone back to normal. ComScore Networks Inc., an Internet measurement firm in Reston, Virginia, watched sales one-tailing sites drop dramatically during the first few days following the attacks, then bounce back later in the week as shoppers flocked back online.
According to Richard A. Feinberg, director of Purdue University's Center for Customer Driven Quality in West Lafayette, Indiana, "Consumers may have money [during the holiday season] that they did not spend in stores because of the tragic events. So we could see a positive retail rebound in the fourth quarter." This news is especially positive for online retailers. "In the wake of the terrorist attacks," he continues, "there is a certain amount of nesting going on, and people may want to stay home and shop online for the holidays instead of going out."
Customer Service & Fulfillment
Most companies have more or less prepared for the expected influx of holiday shoppers. This should translate to a smooth shopping season this year, without a lot of upfront upgrading-or upfront cash. "Fortunately, most e-tailers ramped up operations last year for fear of a repeat of the 1999 season, which was plagued with service issues," says Dougherty.
FragranceNet.com, for instance, an online discount seller of fragrances in Hauppauge, New York, doesn't have to spend nearly as much money this year as it did last year, when it moved into a warehouse about five times the size of its original space.
But even with the economy so uncertain, "We're anticipating the Christmas season to be bigger this year, especially since we have a bigger customer base," says Jason Apfel, 29-year-old founder of FragranceNet.com, which averages yearly sales of $8 million. Every year, the company's fourth quarter represents about 35 percent of yearly sales.
Many companies are also enhancing their shipping and customer service operations this holiday season-just as many did last year. Toyopia Inc., for example, a San Diego, California, online toy retailer that posted sales of more than $1 million last year, beefs up its customer service and fulfillment staff every year by at least 50 percent during the holiday months.
In October, Toyopia began bringing in a seasonal fulfillment staff to work its warehouse and customer service department. "We know that during the holiday season, customers are most interested in finding what they want easily, purchasing it without a lot of hassle or time online, and having it either delivered on time or when they need it," says Bob Reed, 34-year-old senior vice president of Toyopia and one of its founders. Each year, about 45 percent of Toyopia's sales are made during the Christmas season. The company also adds new merchandising and seasonal design features to its Web site every year. For instance, the company's holiday theme features online chat, holiday music and holiday graphics.
However, most companies are probably focusing on cosmetic site design improvements this season rather than expensive features. "Adding robust merchandising features, such as personalization technology, could drive up the cost of site maintenance considerably and even require the use of additional servers," says Dougherty. "As a result, companies this year are sticking with the basics."
Marketing & Promotions
Smart e-tailers are also spending money on marketing, but they're making an effort to spend their marketing dollars more efficiently. The key is to go after those valuable customers that buy from you regularly.
"This year, we're doing more marketing to existing customers, instead of doing prospecting," says Apfel. "We're concentrating on continuing to be a profitable e-tailer, and the best way to do that, I believe, is to focus on existing customers."
Another savvy holiday strategy is to tweak the popular promotions you used to attract a broad spectrum of customers last year in an effort to get better results from them this year. "Last year, we saw many retailers using promotions like free shipping or price-reduction coupons that could only be used when accompanied by a minimum purchase," says Dougherty. "This year, promotions will probably be more targeted to driving up the average order size, where consumers have to buy at least $50 for free shipping."
Competitive pricing is yet another marketing strategy employed by savvy e-tailers. Even with the soft economy, that's still a priority for Toyopia, says Reed. "We're not cutting our budget or scaling back in any way," he says. "In fact, we're looking into increasing our budget." Reed hopes continuing to market aggressively despite an uncertain economy will keep his company afloat and help him eventually gain a larger share of the online toy pie.
With the holidays fast approaching, Reed keeps a positive outlook. "We believe we will experience significant growth by the end of the year," he explains. "We're not sure yet how the recent events will impact us, but even if our growth is less than we originally expected, we are committed to our marketing strategy and our customers."
The bottom line for e-tailers: Aggressively marketing your goods this holiday season is more of a necessity than a choice. "You have to be realistic," Reed says. "If you don't do anything different or exceptional in terms of marketing this holiday season, you are going to lose out."
Melissa Campanelli is a marketing and technology writer in Brooklyn, New York.
Contact Sources
- Purdue University
www.cfs.purdue.edu/conscirt/quality.html - Toyopia Inc.
(877) TOYOPIA, www.toyopia.com.
This story appears in the December 2001 issue of Entrepreneur. Subscribe »
