High gasoline prices and brick-and-mortar shopping hassles continue to push consumers to the online channel.
Posted May 25, 2006
Online retail sales tend to show a drop-off during the summer vacation season, usually defined as Memorial Day through Labor Day. But high gas prices could change that pattern in 2006, according to Edward Foy, CEO of eFashionSolutions, a company that manages e-commerce sites for specialty retailers.
Many of the retailers that use the technology cater to high-end consumers whose spending has yet to be impacted by higher fuel prices, according to Foy. The National Retail Federation (NRF) and some economists, however, have stated that the higher gas prices expected this summer could curtail spending even among the affluent.
While the luxury market has been particularly immune to the rise in gas prices, new evidence suggests that even the recession-proof shopper may start to pull in his fiscal reins, according to the NRF. A recent foundation study revealed that 69.3 percent of shoppers polled (those with household incomes of $50,000 or higher) concede that gas prices are negatively affecting their spending, compared to 59.1 percent in 2005.
Higher gasoline prices mean people have less disposable income and that it's more expensive to get to the mall and back. Add to that the time investment in going to the mall and online shopping looks much more appealing, Foy says. "All of a sudden, the $5 or $8 you pay for shipping [for online orders] doesn't look like that much." Sales have tracked better than normal in April, the last month for which eFashions has complete figures, which could indicate stronger seasonal sales through the summer rather than the fall-off that typically occurs around Memorial Day.
Part of the better tracking may be attributable to better use of customer metrics to push out differentiated offers to online customers, according to Foy. Customers who have been clicking on different types of pants may receive an online coupon for jeans, while someone looking at eye products might receive an offer for those.
In addition to driving more sales, smart retailers are using this information to improve their profit margins, according to Foy. Rather than simply providing discounts to everyone who goes to an e-commerce site, retailers are now waiting until a shopper exits an ecommerce site, and then offering one or multiple discounts. That way, retailers don't "leave money on the table" from those consumers who would buy the product at full price, Foy says, adding that it won't be too long until online consumers realize this and continue to exit until receiving the "best sales price. Consumers will start playing a chicken game like they do with holiday season sales. When that starts occurring, online retailers will need to find another strategy."
High gas prices and the impact of summer travel may not be of the most immediate concern to many retailers. "What typically is of more concern for us is the start of the hurricane season (June 1)," Foy says. "There was a sharp decline due to the disruptions of last year's hurricanes."
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