Consumers Gloat as E-tailers and Malls Slug It Out
January 4, 2000
by Irwin Stelzer
THE SUNDAY TIMES (LONDON)
November 28, 1999
Americans have a lot to be thankful for, and duly recorded their gratitude at last week's traditional Thanksgiving Day gatherings. With the economy growing at an annual rate of more than 5%, jobs plentiful, wages rising and inflation quiescent, America's merchants have good reason to believe that the feel-good factor so noticeable last week will translate into a record Christmas shopping season.
The only question seems to be the outcome of what promises to be an epic battle between retailers and e-tailers, between the glitzy shops and the click-on web sites.
There can be no mistaking the intensity of this battle, even though the newer e-tailers still account for only a small fraction of the total sum that will pass from consumers to merchants during the next several weeks. Analysts are guessing that online sales will total "only" some $12 billion during the Christmas season, a pittance compared with the $168 billion that forecasters think will be spent in shops for everything from electronic gadgets to pashima shawls.
But surveys by Deloitte & Touche show that 63% of consumers who use the Internet intend to buy some gifts there. And since 75% of consumers with household incomes of $75,000 or more use the Internet, traditional retailers worry that their most affluent customers are drifting away.
This is more of a worry to some than to others. A survey by Strategis [SUB-EDITOR - THIS IS CORRECT; IT IS NOT STRATEGIC] Group Inc. shows that whereas 41% of consumers say they most often buy books online, and 17% most often use the Internet to buy CDs and music, only 2% shop-and-click for sporting goods and videos. And a separate survey, by NPD, a New York market-research firm, shows that e-tailers have a long way to go to crack their brick-and-mortar rivals' hold on the apparel market. Nearly half of Internet users say they will never buy clothing online, and those who are willing to make such purchases seem to concentrate their trade on a few specialty clothiers and on shops that they patronise offline.
To encourage more and more shoppers in all categories to let their fingers do their shopping, the dot-coms are spending record sums on advertising to establish their brands. In an effort to emulate the success -- if that is the right word for an enterprise with huge and rising losses -- of Amazon.com in becoming the website of choice for millions, the dot-coms are enriching their rival traditional broadcast and print media by placing record amounts of advertising with them. The American Association of Advertising Agencies estimates that internet companies are spending at an annual rate of $7.5 billion to buy space in newspapers and on billboards, and to broadcast their messages on radio and television. This compares with a mere $250 million last year.
But America's retailers did not establish the shopping mall as the destination-of-choice for millions of Americans by passively waiting for customers to appear. And they do not plan meekly to shutter their shops in the face of this new competition. The Wall Street Journal reports that the Saint Louis Galleria has told its 170 retail tenants that they may not display any signs or otherwise "promote and encourage the purchase of merchandise via e-commerce." So far, this effort by the mall owner to protect its rents, which are related to the volume of sales in the mall's shops, has been a dismal failure.
Individual merchants have been somewhat more successful in coping with their new online competitors. Taking a leaf from the bridal registries, in which brides-to-be publish their "wish lists" to guide potential bearers of gifts, some shops encourage customers to check off the size, color, or model number of the items of their hearts' desire, so that Father Christmas need be in no doubt of the precise reward to bestow on children and adults who have been nice rather than naughty during 1999.
Some merchants, says the New York Times, are going one step further, and employing psychics to help shoppers decide what items are most coveted by those on their lists who have not been obliging enough to record their wishes in the shops' registries. All the harried shopper need do is provide the name and birth date of the projected recipient of his or her beneficence, and the psychic will divine the lucky person's preference.
More important, shops are attacking the problems that they think are driving their customers to stay and home and click away, rather than visit the stores. One such is the hassle of finding sales staff to inquire whether you are being served. Given the tight labor market in America, which has made even temporary staff difficult to find, that will be an even bigger problem than in Christmases past. So some stores are setting up interactive kiosks, at which customers can record their choices, pay with a credit card, and then pick up their parcels on the way out of the store.
It will be well into the New Year before we know how this battle of new-vs.-old will turn out. But a few things are certain. The consumer will be the real winner, as the intense competition between the bricks-and-mortar sellers and the click-ons keeps prices down and pushes the quality of service up. Sellers, too, should do well, overall. But traditional retailers will find their margins pressed as increasingly shrewd buyers know that the post-Christmas sales await the patient and the frugal. And the dot-coms will ring up more sales than ever before.
But whether that record volume will translate into profits is another matter. Amazon.com, beloved of investors for the huge number of loyal customers it attracts to its website, has so far demonstrated only that the more books and merchandise it sells, the more money it loses. If investors begin to doubt that there is indeed gold at the end of the e-tailing rainbow, many of the websites available this year won't be around in the first Christmas shopping season of the next century.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.