Wednesday, November 26, 2008

Flat Holiday Sales for E-tailers?

Flat Holiday Sales for E-tailers?

Bernardo Huberman has sifted through reams of data from Facebook, YouTube (GOOG), Digg, and (AMZN) to build mathematical models that can predict how popular information posted to a Web site will become based on the speed at which users discover it. The director of HP's (HPQ) social computing lab, Huberman and his team of social scientists have also modeled how users' attention declines over time. One key finding: That the long lists of recommended add-on products commonly featured on e-commerce sites yield diminishing returns. Web shoppers tend to stop paying attention after a certain point. "Attention is truly a currency," says Huberman, an Argentine physicist who studies economics and computer networks.

Earlier this year, the computer giant began applying Huberman's research to its e-commerce site selling home and home office computer gear. Out went the long lists of add-on products; in came more precise recommendations based on Huberman's data. HP showed buyers of its high-priced notebooks certain photo printers that sold well with those models, and more utilitarian printers to lower-end laptop buyers. The result: A 30% increase in customers who paired the products when they checked out. HP saw similar results applying the models to software and monitor recommendations. "With Bernardo's help, we've been able to listen to everything customers are telling us with their clicks," says Mike Ritter, vice-president of HP's home and home office store.

Retailers are going to need fresh thinking amid what's shaping up to be the first Scrooge-like Christmas for online retailing since the category first took off a decade ago. Market researcher ComScore (SCOR) on Nov. 25 forecast no growth in U.S. online retail sales in November and December, vs. last year's 19% increase. Retail analysts are warning of dismal holiday sales (, 11/25/08) overall, and online sellers including Amazon and eBay (EBAY) have forecast yearend softness. The online selling season this Christmas looks to be the historic worst "by a mile," says ComScore chairman Gian Fulgoni.

Retailers Caught Off Guard

The stock market meltdown in late September and early October may have been the last straw for shoppers atop a load of bad news including job losses, inflation, and falling housing prices, says Fulgoni. Retailers have been caught flatfooted. "No one was expecting the magnitude of the slowdown," he says. E-commerce sales, excluding travel, dropped 4% from Nov. 1 to 23, to $8.2 billion, ComScore reported, the first drop since the medium's inception. October e-commerce sales increased just 1% in the U.S., according to ComScore; last October they were up 19%.

Consumers have shut their wallets. Those earning less than $50,000 cut their online spending by 3% in the third quarter compared with a year ago, and households that earned $50,000 to $100,000 increased spending just 1%, according to ComScore. Now, the question is whether the drop in gas prices the past few weeks will free up more disposable income for online purchases, which are almost purely discretionary.

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