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Holiday online spending soars--but is it enough?

Consumer spending online nearly doubled in the week ended Dec. 17 year over year, according to a Goldman Sachs study, but a Nielsen/NetRatings study shows signs of cooling.

5 min read
Online holiday shopping peaked about a week before Christmas, and consumer spending nearly doubled compared with the same period in 1999.

Online holiday spending for the week ended Dec. 17 came to $1.6 billion, which was slightly higher than the previous week's $1.5 billion, according to a new study conducted by investment banking firm Goldman Sachs and technology researcher PC Data. By comparison, shoppers spent about $878 million on purchases made over the Web during the same period in 1999.

The study also noted that total online holiday spending reached $8.7 billion from the first week of November, about a 108 percent jump over the $4.2 billion shoppers spent on the Web in the year-ago period.

On the other hand, another recent study found that online holiday shopping started to cool midmonth, as some consumers began to hit the malls for last-minute gifts. During the week ended Dec. 17, around 63 million visits were made to online stores, about a 7 percent drop from the 68 million made the week before, according to a report released last Thursday by Nielsen/NetRatings, a company that tracks Internet traffic.

Chuck Davis, CEO of consumer-activity watcher BizRate.com, told CNBC that Internet orders are up 58 percent in dollars and 40 percent in orders. While this is good, he said, "We had anticipated an 81 percent jump."

Two categories did particularly well, Davis said: home and garden, and toys. He also noted that many people who bought new PCs will receive or open them today, and thus sign up for Internet service and have their first opportunity to shop online.

While e-tailers may feel a warm glow from the seasonal rush, the response of some consumers to online shopping this year ranges from skepticism to frustration to satisfaction.

"I?m one unhappy shopper this season," said Sunita Govind of Plainsboro, N.J., who did about 20 percent of her Christmas shopping over the Web, mostly buying gifts for her toddler and other family members. "I had a very disappointing experience this year."

Govind won't shop online next year, she said, because of e-tailers' high prices and expensive shipping and handling rates. Brick-and-mortar retail stores seemed to have better prices and seasonal sales, she said.

"There would have to be a very compelling reason for me to shop online again," Govind added. On the positive side this year, her orders did arrive on time, an improvement from the previous year, she said.

The potential for delays kept Maurizio Caltagirone from shopping online altogether. An employee of a credit card company, he said he feels secure about the safety of his financial information, but isn't confident about other potential pitfalls, such as whether a product will ship as promised.

"I don't want to place an order during the Christmas season and then have to explain to family and friends why I am empty-handed," said Caltagirone, a technical project manager at Providian Financial. "Because I work with computers, I know all the things that can go wrong, like glitches and database problems which can wipe out orders even after a confirmation."

Caltagirone added that he uses the computer mainly for researching products before heading to brick-and-mortar retailers.

On the other hand, Gerald Douglas, a Web producer at an Internet start-up, found bargains using Internet rebate services such as DealProvider.com and has every intention of continuing shopping on the Web year-round.

"It was a good experience," said Douglas, who added that he did not encounter any delays in receiving the items he purchased. "I am not concerned as much about shipping costs as I am about timely shipping."

A sophisticated online shopper, Douglas has fine-tuned the art of online shopping by pitting e-tailers against brick-and-mortar retailers, showing each the better deals he is able to secure from competitiors. This way, he said, he manages to get lower prices.

Make or break
For many struggling e-tailers, the 2000 holiday season was either going to make or break their businesses. After some of last year's holiday shopping disasters, several companies invested heavily to please some of 1999's dissatisfied online customers with improvements in order fulfillment, customer support and on-time deliveries.

Though some research firms set booming projections for the current shopping season and a number of recent studies have shown improved holiday figures so far, many e-tailers are still struggling to stay alive in a market that has gone sour for most e-commerce sites.

Just two weeks ago, online toy seller eToys warned that third-quarter revenue will fall short of analysts' estimates. The troubled company also said that as a result of the shortfall, it will run out of cash around the end of March. eToys has begun exploring options to sell the company or its assets and intends to announce layoffs early next year.

Other e-tailers in the toy sector, including Toysmart.com and Toytime.com, have gone under. Meanwhile, brick-and-mortar companies seem to have successfully migrated online this year, and analysts have said that the current status of their online businesses shows only improved figures in 2001.

According to the Goldman Sachs-PC Data survey, which queried 2,823 home-based Net shoppers about their buying habits during the week of Dec. 11 through Dec. 17, 40 percent of consumers said their online shopping experience was better than in 1999. About 54 percent said their experience was around the same, and 5 percent said it was worse.

Separately, Internet giant Yahoo said Tuesday that order volume in the United States across its shopping properties during the 2000 holiday season nearly doubled from the same period a year earlier. Yahoo also said that order volume nearly tripled for U.S.-based brand-name retailers that also operate a traditional store. Yahoo shopping properties include links to retailers such as Macys.com, Banana Republic and Eddie Bauer.

Also on Tuesday, Kmart's BlueLight.com reported a hefty increase in holiday sales. San Francisco-based BlueLight, which did not disclose actual figures, said sales leaped more than 1,060 percent compared with the same period in 1999. From the first week of November to the week of Dec. 17, BlueLight sales jumped more than 300 percent, according to the company.

BlueLight also said that in mid-December it saw sales jump in several Midwestern cities, including Chicago and Detroit, along with top sales cities, led by New York and San Francisco.

News.com's Sandeep Junnarkar contributed to this report.