Holiday e-tail season may be big, but problems persist

Santa could bring another good holiday season for ailing e-tailers, but consumers might still have to face the Grinch.

Holiday e-commerce report

With the holiday season drawing near, consumers are gearing up to spend more money online this year than they did last year, Jupiter Media Metrix said in a conference call with reporters Friday. Consumers also might have a better chance of receiving their gifts on time this holiday season, but they could still face irritating customer service delays, the research company said.

"Unfortunately, some consumers are in for a bumpy ride this year," said Jupiter customer service analyst David Daniels.

Jupiter's report comes at what some consider the start of the online holiday season. Last year, online holiday shopping took off in October and grew through November before tailing off in late December.

The holidays also come as many e-tailers have either closed shop or are in dire financial straits. With the crash in the market for Internet stocks this spring, many Web stores have been unable to come up with the money to continue their operations.

Not only has this lack of cash killed off some of the weaker players, it also could mean less costly TV advertising. Without such ads, e-tailers might operate with a better bottom line, but it could mean a decrease in customer growth and in the growth of online spending.

"The subtext this year is profitability," Jupiter digital commerce analyst Ken Cassar said. "Last year, retailers were confident that regardless of how much they spent, they could go back to Wall Street. This year, they can have no such confidence."

The holiday season could see a downturn overall in consumer spending compared with last year, Jupiter said. But the New York-based research company projects that U.S. consumers will spend $11.6 billion online during November and December this year, a 66 percent increase over last year.

Contributing to the growth in online spending is a jump in the number of online shoppers, which will number 48 million by the end of the year, Jupiter projects. That is up 45 percent from the end of last year.

Also adding to the growth in online shopping: a higher comfort level with buying goods on the Internet. Last year, 61 percent of online shoppers planned to spend less than 10 percent of their holiday budget online. This year, 82 percent plan to spend more than 10 percent of their budget online.

Online holiday sales set a record last year, growing more than 125 percent over 1998 holiday sales, to $7 billion, according to Jupiter. But many companies could not handle the deluge of holiday orders.

Toysrus.com, for instance, became all but inaccessible last November after parent company Toys "R" Us sent out a national holiday advertisement. And in July, the Federal Trade Commission fined seven online retailers, including Toysrus.com and Macys.com, for failing to notify customers of shipping delays during last year's holiday season.

In the wake of the problems, e-tailers have focused on bulking up their fulfillment systems, Jupiter reported. Some 51 percent of online stores surveyed by the research company put new fulfillment systems in place this year, 46 percent expanded their fulfillment staff, and 37 percent expanded their distribution centers.

"A combination of great back-end investments, greater experience in online retail, and the disappearance of weaker players leads Jupiter to believe that fulfillment will go much more smoothly this year," Jupiter analyst David Schatsky said.

Although fulfillment could be a brighter spot for e-tailers this year, consumers could be turned off by e-tailers' customer service. E-tailers have been boosting spending to either implement or enhance so-called self-service help solutions, Jupiter said. By directing consumers to these online frequently asked questions or Web help pages, the companies save money by not having to hire additional customer service staff.

But most consumers do not use these self-help solutions, and those who do are often unsatisfied with them, Jupiter reported. That means that companies will still be fielding email and phone calls from consumers, despite their self-help investments.

Unfortunately for consumers, their expectations far outpace most companies' abilities. While 55 percent of consumers expect companies to respond to their email inquiries within six hours, only 29 percent of companies meet that expectation, Jupiter said.

Adding to e-tailers' customer service woes could be the under-trained seasonal staff employees that most companies plan to hire to help answer questions this holiday season.

"We believe that customers will again be kept waiting," Daniels said. "They enter this holiday season with much higher expectations than they have had in past."