A 2006 Online Holiday Spending Projection

Packed stores filled with endless lines--yes, it's the holiday season, again. Many consumers are, however, expected to continue the trend of sidestepping the stress often associated with the holiday shopping experience by turning to the Web. U.S. online holiday retail sales are expected to hit the $27 billion threshold this year, representing a year-over-year surge of 23 percent, according to "US eCommerce Outlook For Q4 2006," a Forrester Research report released Monday. The report leverages findings from Forrester's online survey of about 4,000 consumers in 2006. It should be noted, though, that the forecasted growth rate is flat; online holiday sales from 2004 to 2005 also generated 23 percent growth.

Much of the reasoning behind the expected growth is consumer comfort with the online channel, according to Sucharita Mulpuru, a senior analyst at Forrester and author of the report. "It's particularly convenient at this time of year," she says. About one-fifth of those surveyed indicated that the Internet will be the place they shop the most this holiday season.

Despite the quarter's expected net consumer spend increase, the number of decreased spenders in Q4 2006 is the same as the increased spenders, according to the report. Forty-nine percent of respondents will spend about the same amount online during the 2006 holiday season, compared to 2005's holiday season. But 20 percent will spend a little more, while just 6 percent will spend much more, 12 percent will spend a little less, and 14 percent will spend much less.

Forrester contends that consumers understate spending expectations. "You're less likely to overstate than understate because you're probably just thinking about the things that are top of mind," Mulpuru says. "You don't really add in all of the little things that get added at the last minute [like] all of the colleagues that you may have to buy gifts for."

Understandably, the economy's health has a lot to do with consumer sentiment. "Last year we were still in the midst of a housing boom," Mulpuru says. "This year gas prices are a lot more uncertain, so all of these things are leading people to be a little bit more cautious about their spend." In some respects, though, the economy's uncertainty may actually give online retail sales a boost: 23 percent of respondents noted that they're more likely shop online because of higher gas prices, according to the report.

A portion of overall consumer sentiment is also attributable to product fulfillment woes. Fifteen percent of survey respondents noted that they received their orders late last year. The return process is also causing consumer frustration. Fifty percent feel that returning items purchased online is a hassle, while 27 percent revealed that they'd rather not buy online just to avoid the hassle of returning items.

To boost holiday sales generated online, Mulpuru suggests several tips including making the shopping experience as easy as possible, featuring a robust selection of items, emphasizing the convenience of the return process, and offering free shipping; 66 percent of respondents are more likely to shop at a retailer that provides free shipping, according to the report. "At this time of year it is important to up your marketing spend, be it in the portals or in paid search or in comparison shopping engines," Mulpuru says. "This is the one time of year that all of those vehicles really come alive and consumers use them pretty avidly to find products that they're looking for. If one does not participate in them in general, this is the one time of year that most retailers should consider this."

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