Embattled e-tailers prepare for big holiday rush

Many "pure play" online stores are entering the madcap holiday season hobbled by the effects of almost nine months of dot-com decline. Instead of boasting unlimited budgets fueled by the investor enthusiasm of 1999, many of this year's Christmas contenders are going in battered by layoffs, shrinking budgets and plunging stock prices.

Holiday sites prepare

"Everyone is trying to make it past the holidays," Gaw said. "The guys that don't have enough money are hoping to make it past the new year so they make themselves look interesting. They are basically dressing themselves up for a wedding."

With less cash on hand, many e-tailers have slashed their advertising budgets, which could mean fewer new customers during the holiday rush. Instead, many companies are trying to provide better service to the customers they already have, with less expensive direct marketing campaigns such as catalogs and targeted emails.

A tighter budget also means many companies will not have the flexibility to spend so freely on hiring seasonal help or stocking up on inventory.

There is some skepticism this year that e-commerce sites--particularly the smaller ones--will be able to provide good customer service and have goods delivered in time for the holidays. Those were two key problems that plagued e-tailers during recent holiday seasons.

Smaller sites "may be on shaky ground because they don't have the resources to handle the crush," said Vernon Keenan, financial analyst at Keenan Vision, a San Francisco company that tracks and offers advice about the Internet. "A lot of the smaller sites depend on suppliers to ship directly to customers. In the holiday crunch, these indirect fulfillment operations can break down."

Larger e-tailers, such as Amazon.com, and the so-called bricks-and-clicks, such as Target.com or PotteryBarn.com, are expected to have a good season, boosted in part from people's decision to stick with well-known brands in a time of uncertainty.

"The most popular sites will do well this year," Keenan said. "They are going to attract more customers."

Customers are also shopping earlier this year, according to a Goldman Sachs/PC Data report released Tuesday. Shoppers almost doubled their online spending during the week of Nov. 6 through Nov. 12 to more than $1 billion, almost double the previous week's amount.

"Consumers are obviously determined to make sure Santa comes on time this year, and that children aren't 'Grinched' by late deliveries," Cameron Meierhoefer, Internet analyst for PC Data, said in a statement.

Since the spring, hundreds of e-tailers have gone out of business, including such well-known and well-funded sites as Living.com, Furniture.com and Pets.com.

The shutdowns have left fewer e-tailers on the field. With less competition and more concern about profit, shoppers are finding fewer sales or special promotional deals this year. A year ago, many e-tailers were willing to sell goods at a loss to beef up their customer lists or show increased traffic. In today's environment, those tactics are verboten.

"Venture capitalists aren't funding the public's Christmas-shopping sprees," Keenan said, adding that companies such as Pets.com "were basically giving away products in hopes of building customer bases."

Sherri Killian, who uses the Shopping Boards on MyCoupons, agreed, saying she could not find many bargains this year.

"I think many companies offered too many 'GREAT DEALS' and lost too much money," Killian said in an email to CNET News.com. "I have managed to find some, but not near what I found last year."

Last year was both bountiful and a disaster for many dot-coms--and for their customers. There was a huge increase in the number of people shopping online, but the sheer numbers overwhelmed some companies, and there were several high-profile site failures.

This year, many struggling e-tailers trying to avoid those problems must decide how to spend funds that may be scarce. Is money spent on advertising to draw in customers, or on customer service representatives? Is there enough stock on hand so that companies won't run out of goods, and are delivery systems worked out?

Those decisions are critical since a customer's experience during the holidays could affect whether they return to a site again. In addition, investors keep a close eye on how companies do in the fourth quarter.

Analysts predict that this holiday season will decide whether many online stores survive next year.

"Any investment they've made, there is nothing they can do now to dramatically improve their chances," Gaw said. "It's all wrapped up. Either they've gotten it buttoned up or they're toast."