Discounts just a click away

If you've logged on even occasionally lately, you have probably caught wind of the countless online retail promotions: Godiva.com is giving away $32 in truffles for every $100 spent; Barnesandnoble.com is taking 35 percent off some DVD prices; and just about every business is offering some form of free shipping. Executives said the discounts were part of their plans, but analysts suggest the moves were more a result of jitters brought on by projections of tepid sales.

Now, with fuel prices falling sharply, economists are casting the holiday shopping season in a slightly rosier light. Last week, the National Retail Federation added another $4 billion to its holiday season estimates, edging the projected total to $439.5 billion, a 6 percent rise over last year's totals. And on Sunday, the organization said that sales on so-called Black Friday jumped 22 percent from last year.

E-commerce analysts have held steady to their sales estimates, which call for growth of about 20 percent over last year's totals, bringing the medium's sales to roughly $26 billion.

Still, with consumers spending more freely, all the early promotions rolled out by Internet sites could result in stronger discounted sales than these companies bargained for, and the effect on their bottom lines could be significant.

"They've been very aggressive so far," said Heather Dougherty, an analyst with Nielsen/NetRatings, a technology-consulting firm. "It's interesting, because for the past six years they've been trying to wean people off the idea that the Internet is all about low prices."

Dougherty said the first holiday promotions started to trickle in during early November, before the first heating bills arrived in consumers' mailboxes. "Then, once someone dangled it, others had to ante up," she said.

Early indications are that consumers are responding well to this year's promotions. Nielsen/NetRatings said that Internet traffic on Friday surged 29 percent from last year, with sites like Walmart.com, Target.com and Circuitcity.com posting gains of more than 100 percent from the prior week.

As for whether retailers will be able to maintain respectable profit margins amid such discounted sales, Dougherty wasn't so sure. "It's going to be a challenge for them," she said.

Especially when the costs of running an online shop are rising. Take shipping, for example: every package that online retailers ship through FedEx and U.P.S. until early December will carry a 4.5 percent fuel surcharge. After that, the fee jumps to 5.25 percent for another month. Last year, that expense wasn't nipping at Internet merchants' heels.

Meanwhile, advertising costs are also rising in some critical areas, like search-engine marketing. There, retailers bid for the right to display their messages near search results when consumers type certain terms into the search box. The recent competition for the most prominent spots has yielded some nosebleed-inducing prices. "For key words like cashmere sweater, Xbox, or video iPods, it's out of control," Doughterty said.

Balancing promotions, giveaways
Doug Williams, marketing manager for Sierra Trading Post, a Cheyenne, Wyo., discount apparel seller, said he prices for search terms like "women's handbags" had risen 30 to 40 percent since the summer. He stopped bidding when the price charged to him each time someone clicked on his ad reached a dollar. He said he would continue to pay for other terms that have risen significantly.

The company is still profiting from sales on those ads, just not as much as before. "It's still acceptable," Williams said. "We're just keeping a much keener eye on our Google campaign than in the past, to make sure we're not paying for terms that aren't performing."

Williams said the company, which offered 20 percent off many items on its site last week and is discounting other items by 10 percent this week, can maintain profits by playing other angles in its business more sharply than before.

For instance, he said, SierraTradingPost.com has become better at aiming discounts at specific groups by e-mail. The site's most loyal customers will sometimes receive free shipping or other discounts not extended to others.

For other Web sites, like the bookseller Barnesandnoble.com, discounts are being balanced by more refined merchandising techniques, to help glean sales from items outside the bargain bin. Barnesandnoble.com is one of many sites that have recently rolled out video features to help sell goods. In this case, weekly video "tours" feature a category specialist who guides customers through a range of choices in a given book genre.

The site also recently introduced a gift guide tailored to personality traits of the recipient. Comedy buffs are offered titles by Jon Stewart and George Carlin. Animal lovers get "The Art of Being a Wolf," among others.

"It's not just about the promotional offers," said Marie Toulantis, chief executive of Barnesandnoble.com. "People have so much information thrown at them, especially in books, where there are hundreds of thousands of new books published each year. The challenge is in how you bubble up the best choices for them."

Barnes & Noble does not disclose profit margin data for its dot-com division, but Toulantis acknowledged that propping up margins in the midst of higher shipping costs and the usual array of discounts "is difficult; but you just have to keep a close eye on your costs."

For other online merchants, even the cost of pricey giveaways can be absorbed, thanks in part to the profitability of an oft-overlooked category: corporate gift sales.

Godiva.com is for the second straight year offering a $32 box of truffles to anyone who spends more than $100 on the site--a freebie that Kim Land, who oversees Godiva.com, said pays off nicely.

The company still earns an acceptable (though undisclosed) profit on sales that accompany the promotion. But such giveaways are especially attractive to businesspeople, who like the idea of giving themselves a little bonus while they buy multiple gifts for company clients.

Land said that to help sustain the site's corporate gifts business, which accounts for at least 25 percent of sales, Godiva.com has also created a business gift recommendation feature, as well as a downloadable spreadsheet to help customers buy items for scores of clients. "December business gifting is very lucrative, and everybody understands that now," she said. "So that marketplace is really heating up."