Flailing Economy Finally Sours E-Commerce Sales

A new holiday shopping forecast reinforces fears that the economic downturn will sap some consumer spending online. But higher gas prices could help keep the e-commerce growth engine chugging, just not by as much this year.

Analysts at Forrester Research are now expecting a 12 percent increase in e-commerce spending this year compared to last year, for total sales of $44 billion. The growth may be double digits, but it's just over half as much growth as the year before, when e-commerce spending grew by 20 percent from the previous year.

Traditional retailers would salivate over a double-digit growth rate. But e-commerce spending has been accelerating at a faster clip as more shoppers discover the delights of shopping without fighting traffic or waiting in line, and warm up to the idea of sending their credit-card information into the ether.

Forrester's survey found that the migration of shoppers to the online channel will continue, but the broader economic woes will have an effect on how much they spend.

Failing Economy Finally Souring E-Commerce Sales

"While e-commerce has traditionally been resistant to negative offline trends, growing concerns about the stability of the economy are finally affecting consumers' online shopping decisions," wrote Forrester analyst Sucharita Mulpuru.

That conclusion analysis meshes with previous analyses finding that rising prices of staples such as gas and food will inevitably eat into household budgets, reducing discretionary income.

For online retailers, however, gas prices can be a double-edged sword. Higher prices mean tighter budgets, but in Forrester's survey, 36 percent of consumers said they would do more shopping online to save money on gas, compared to 22 percent in last year's survey.

Another bright spot for the online retail sector is the growing sense among bargain-hungry shoppers that they can find the best deals on the Web. Forty-eight percent of consumers surveyed by Forrester believe that online shopping is a better value proposition than the offline channel.

A lot of that value comes how easy the Web makes comparison shopping, according to Forrester Vice President Patti Freeman Evans. "A main attraction of the online shopping environment is the breadth of information that it offers," Evans said in a statement. "Retailers should expand their use of online marketing tactics on search engines and comparison-shopping sites since shoppers are likely to be researching the Web more thoroughly when deciding on this year's holiday gifts."

In that spirit, free shipping figures to be one of the key attractions for online shoppers this holiday season.

In reporting third-quarter earnings yesterday, executives from e-commerce giant Amazon told analysts they expected free shipping and competitive pricing to give it an edge over other retailers. Nevertheless, Amazon, which had long seemed to hover above the economic headwinds, significantly lowered its fourth-quarter guidance.

Amazon's earnings followed a disappointing financial performance by rival eBay, another e-commerce bellwether.

Indeed, Forrester found that 45 percent of online shoppers plan to spend less this holiday season as a result of concerns about the economy, up from 20 percent in 2007.

This article by Kenneth Corbin appears courtesy of InternetNews.com.

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