E-tailers fall for promotions to lift sales
By turning holidays into promotional opportunities, online retailers look more like their traditional counterparts that profit mostly from the holidays.
Yet Valentine's Day is just one in a long line of "Hallmark" holidays that are used to lure new customers. By turning such holidays into promotional opportunities, online retailers are looking increasingly like traditional retailers, or greeting card companies, that profit mostly from the holidays and seek to bolster sales throughout the year.
Amazon.com, for example, reported that 41 percent of 1999 revenues came in the fourth quarter last year. Meanwhile, about 80 percent of eToys calendar year 1999 sales came in the fourth quarter.
"You're going to see all kinds of promotions from e-tailers," said Barry Parr, e-commerce analyst for International Data Corp.
Among the current promotions:
Following the record holiday shopping season online, e-tailers are contending with the same seasonal sales factors that affect traditional merchants.
In a conference call with investors last week, e-commerce leader Amazon, for instance, projected that its first-quarter sales will drop from its fourth-quarter revenue. Although such a drop off is not unusual in the brick-and-mortar world, it would represent the first time that Amazon's quarterly revenues have fallen on a sequential basis.
To combat seasonal sales, traditional retailers use promotions such as Presidents' Day or Memorial Day sales to encourage customers to visit their stores. As e-tailers mature, they too will increasingly rely on promotions to drive traffic to their sites, analysts say.
"Every single holiday will be recognized by somebody," said Mike May, a digital commerce analyst at Jupiter Communications.
The promotions could be a boon to consumers, giving them discounted goods on a periodic basis. But they could prove to be the bane of e-tailers already struggling to reach profitability.
Several companies such as Gap and Amazon are enticing customers with impulse gifts rather than discount prices. But that strategy may not work, analysts say. After receiving free shipping and other discounts during the holiday season, consumers may be beginning to expect deep discounts online.
"We don't know how consumers will react to less attractive promotions," said Rebecca Nidositko, e-commerce analyst at the Yankee Group. "We don't know how customers will react if they've gotten accustomed to that sort of treatment."
Drugstore.com is not offering any discounts for Valentine's Day, but is
promoting items such as Altoids mints, massage and body oils and scented
candles. Drugstore.com's promotions reflect marketing tactics in the traditional
retail world, said company spokeswoman Debbie Fry Wilson.
"We mirror the brick-and-mortar calendar," Wilson said. "Thematic and seasonal purchases are expected by consumers and reflected in their buying habits."
And e-tailers may soon become addicted to promotions. Unlike offline bookstores or malls, consumers don't tend to browse the merchandise at online stores, a study by Jupiter indicates.
Instead, they tend to visit online stores only when they have something in particular to buy. To drive up their revenue, online stores will have to give consumers reasons to visit more often.