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Christmas Gift Guide
Internet

Some e-tailers may miss cheer in holiday sales

E-commerce sales are expected to skyrocket this holiday season, but the pie will be split among comparatively few e-tailers, analysts say.

E-commerce sales are expected to double this holiday season, according to a new research report, but the extra portions of the pie may be divided among comparatively few e-tailers.

E-commerce sales in November and December could reach $6 billion, according to leading Internet research firm Jupiter Communications, which released its sales projections today. That's nearly double the $3.1 billion the firm estimates e-commerce generated last year, and falls into line with what other analysts are projecting.

Companies poised to do well this Christmas include "pure" e-commerce firms (such as Amazon.com) that have been building up their distribution systems, as well as "brick-and-mortar" firms (such as the Gap) that already have their infrastructure in place, analysts say. Pure e-commerce companies conduct business solely over the Internet, whereas brick-and-mortars are rooted in the more traditional retail market.

Among the keys to success will be order fulfillment, said Alan Mak, an analyst with Argus Research, along with customer service and rapid download times.

Typically the biggest season for the offline retail industry, holiday shopping has become crucial for e-commerce companies as well. This year doesn't look to be any different, with such giants as Wal-Mart, Banana Republic, and Circuit City revving up their sites for the holidays.

Nothing short of a major Internet security scare will stop the jump in holiday sales, analysts agree. Jupiter projects that the number of people who have bought products online will jump from 19 million at the end of last year to 29 million at the end of this year.

"No one can say that they were surprised by this fourth quarter," said Jupiter's Ken Cassar, a digital commerce analyst. "Everyone knows it will be enormous."

But the big numbers won't necessarily translate into big profits for every e-commerce company, said Vernon Keenan, a financial analyst with Keenan Vision. In fact, many are suffering through an earnings squeeze because as they try to attract market share, they must keep prices low. Meanwhile, to attract customers, firms must spend millions on advertising.

"I don't see any bright prospects for earnings in '99," Keenan said.

Some sectors could fare better than others. Just as toys jumped onto shoppers' radar screens last year, consumer electronics and home furnishings are poised for a breakout year, according to Cassar. The firm projects that consumer electronics sales will jump to $400 million this year, compared with $200 million last year.

Mak said that the differences between the stock prices of e-commerce companies will start to reflect their success this holiday season. While Mak expects eBay and Amazon's prices to "really shine," the smaller e-commerce players "will continue to stay very small and will fall off the radar screen.

"The cream is rising to the top," he said.

Companies that don't do well could find themselves out of the e-commerce game, Kassar agreed.

Accordingly, it's crucial for e-commerce companies to avoid outages and to make sure that they fulfill their orders. "They've got to prove that they are viable or find another business," Kassar said.