CNET también está disponible en español.

Ir a español

Don't show this again

The Grinch who stole e-Christmas

It seems that Madison Avenue has merged with Sesame Street, and together they have decided that 1999, as well as the next millennium, will be brought to us by the letter E.

It is amazing how quickly the weather can change as we enter the holiday season. Just last week, it was warm and nearly 70 here in New York City; this week, I feel as though I've been transferred to the Canadian offices of CIBC World Markets.

Fortunately, I never fail to associate the first signs of winter with my favorite time of the year: the holiday season. In fact, it is beginning to look a lot like e-Christmas everywhere I go.

E-Christmas? It seems that Madison Avenue has merged with Sesame Street, and together they have decided that 1999, as well as the next millennium, will be brought to us by the letter E. It is a solid decision, considering the explosion of consumer spending that will occur around this holiday season.

Last year merchants rang in a record $3 billion of e-commerce in the fourth quarter. This year, the total is projected to be at least $6 billion, with some estimates ranging as high as $12 billion. Both offline and online merchants are stocking up on the newest toys and gifts so they can meet consumers' seemingly insatiable demand.

Let's look for a moment at the two e-tailers that probably should benefit most from the holiday shopping blitz we are expecting: Amazon.com and eToys. Amazon CEO Jeff Bezos's busy little elves (and eToys CEO Toby Lenk's, too) are making substantial efforts to be ready for a deluge of consumers in the fourth quarter, ramping inventories ahead of demand. Both have made substantial improvements to their user interfaces, allowing me to make my purchases online with one click--dramatically cutting down the wait at the virtual checkout.

In addition, gift certificates, gift-wrapping and shipping, and gift registry features will help make e-Christmas a much more enjoyable experience for all of us. At the same time, both companies have improved their distribution capabilities, significantly increasing reindeer expenditures, so that no wee child will have to wait to open a present.

Although all of these preparations and analyst forecasts conclude that revenues are going to explode, e-Christmas may not be so merry this year, at least for the Internet retailing stocks. Both Amazon and eToys have decided to significantly boost advertising expenses so that they can be seen in the blizzard of advertising that is forming here in the north--even though we believe they already have strong consumer brands.

Amazon decided to triple its marketing spending, from $33 million in the third quarter to nearly $100 million for e-Christmas. eToys decided to increase its spending for sales and marketing to almost $60 million.

Competition for customers seems to be heating up, and this is taking a toll on margins, at least for the foreseeable future. Judging from the performance of both stocks since their third-quarter earnings releases, investors are somewhat disappointed (I guess we had visions of profits, like sugarplums, dancing in our heads). Remember, however, that although revenues may be exploding, it is the margin that counts.

This year it looks like the Grinch is going to steal e-Christmas, at least for Internet retailing stocks. It seems that profits, at least for the near term, are going to be as mythical as Santa Claus. As for us consumers, if you haven't hung your electronic stocking yet, it's not too late.

Close
Drag
Autoplay: ON Autoplay: OFF