Net retailers in eye of holiday storm

Are e-tailers ready for St. Nick?

That's what consumers, investors and analysts will be asking starting this week, as the official holiday shopping season gets underway. Toys "R" Us, eToys, Amazon.com, eBay, Virgin Megastore, Webvan and others will be under more pressure than ever to make sure their online stores can handle the crush of holiday traffic.

The stakes are high. During the five weeks between Thanksgiving and New Year's, 8.6 million households will shop for items on the Internet, spending a record $4 billion, Forrester Research estimates. Many e-commerce stocks have been bid higher after a summertime lull, largely because of expectations that they can deliver the goods--literally. Dot-com advertising is at record levels, based on the companies' hopes that they can recoup the expenditures by selling more books, CDs, apparel, food and other products--a risky proposition.

Online retailers say they are ready to handle the extra business. But many analysts and consumers remain skeptical. They point to recent incidents that have caused Web sites to shut down, the latest being an untimely but brief outage by Amazon on Friday. Other concerns: a shortage of customer service representatives and breaches in security.

"I think the traffic is going to be mind boggling, and we're already seeing cracks in the system," said Chris Vroom, e-commerce analyst at Thomas Weisel Partners. "The problem is that when your Web site is down, you're closed for business."

Added Kay Kleinman, 55, a Moraga, Calif., resident who was shopping for a toy for her granddaughter at Toysrus.com: "I was using a coupon and went online to checkout, but it wouldn't let me…I probably won't shop with them again."

The examples that have sparked concerns include:

• On Friday, Amazon's Web site was briefly shut down. "We're sorry, but our…stores are closed temporarily. We expect to be back soon," a note read. The timing was unfortunate: It came shortly after the ballyhooed expansion of such stores as software and home improvement--and only days before Thanksgiving week.

• A week ago, merchants using CyberSource's credit card authorization system were inconvenienced when the company known as the "power behind the buy button" went offline for nearly a day. The problem stemmed from difficulty configuring its software and hardware.

CNET News.com TV talks with Lauren Cooks Levitan, senior eTailing analyst with Robertson Stephens.

• Two weeks ago, retailing giant Toys "R" Us suffered a prolonged slowdown on its Web site, as business surged more than expected because of a holiday promotion. The tenfold increase in traffic slowed the retailer's Web site to a crawl for days, causing many consumers to turn elsewhere. The company couldn't seem to get anything right--including a spelling error "appologizing [sic]" to consumers.

• During Labor Day weekend, customers were locked out of Virgin Megastore Online because of a surge in shoppers during a sales promotion. "Due to the enormous turnout, the check out lines are currently full," a message read. "Please try again later."

eBay also has suffered sporadic outages in recent months, raising concerns about the auctioneer's ability to handle traffic during the holidays. eBay is billing itself as a hassle-free holiday shopping site with "no parking spaces to find, packages to juggle or lost kids to locate." This summer, eBay's prolonged outages became legendary.

The problems aren't limited to traffic slowdowns, either.

A long-awaited trendy fashion site called Boo.com launched on Nov. 3, but the Web site warned, "If you use a Mac, you may experience some problems." Despite the glitch (iMac is fashionable in its own right), Boo.com executives said they have learned from their mistakes and are "extremely confident" of the site's reliability during the holiday season, as chief retail officer Tobin Ireland put it.

Other e-commerce executives say they are ready as well. Toys "R" Us, for example, is quadrupling the number of Web servers at its site, hoping to avoid the problems of earlier this month. It also is reducing television and radio advertising, figuring demand already is strong enough.

"Before this [slowdown], I would have said we were ready for the holiday season," said Toysrus.com chief executive John Barbour. "We were wrong, and we're going to have to live with that."

He added: "Hopefully others will learn from our lessons."

Virgin Megastores has learned its lesson. "We were conservative in our projections during the Labor Day sale," said Glen Ward, president of Virgin's e-commerce group. "Since then, we have expanded our servers greatly. We know the holiday crush is going to increase business exponentially."

Online grocery stores, such as Webvan, Peapod and HomeGrocer, are preparing for extra business by offering expanded delivery hours or by packing more groceries aboard each truck (see related story). Still other online retailers may turn to companies such as Ernst & Young for its eRescue service--a kind of Roto-Rooter of the Internet that will troubleshoot a Web site and help get it up and running (see related story).

eBay contends it has made great improvements since the summer. "We're well prepared for the holiday rush," a representative said.

Despite its snafu Friday--blamed on scheduled maintenance--Amazon said it is ready. "We've been building an infrastructure that will accommodate traffic for the year 2000, so it's more than ample for the holiday season," a representative said.

In the meantime, another sector of the technology industry--those companies that provide the infrastructure for e-tailers--say business is booming. "We had expected sales to slow a bit at the end of the year because of the holidays and Y2K," said Bob Delaney, manager of market development for Sun Microsystems. "But, if anything, we've seen the opposite."

News.com's Stefanie Olsen contributed to this report.