Free Shipping Boosts Online Holiday SalesFree Shipping Boosts Online Holiday Sales

Early indicators foretell a healthy year-over-year increase in online holiday sales, which analysts say were boosted by offers of free shipping.

Retail sales over the Web from Nov. 1 to Dec. 31 are expected to exceed $13.1 billion, more than 17% higher than the 2001 holiday period, Jupiter Research reported Monday. Jupiter, a division of Jupitermedia Corp., based its forecast on early reports from online retailers. Final figures are expected in March.

Free shipping was the primary reason for the increase, and that could leave retailers in a difficult position with consumers. "Online retailers may have created the expectation among consumers that free shipping and handling is now the norm, which puts a lot of pressure on retailers to run free shipping promotions into perpetuity," Jupiter analyst Ken Cassar said in a statement.

Rather than drop the service embraced wholeheartedly by consumers, Jupiter advised retailers to make their warehouse and delivery operations more efficient to reduce costs. In addition, "retailers that do not have to match the prices in their own brick-and-mortar stores should consider gradually and subtly raising prices online to cover lost shipping and handling revenue," Cassar said.

Buy.com Inc. is an example of an online retailer that benefited from free-shipping promotions. The company received 806,000 orders during the holiday season, a 35% increase over 2001. Robert Price, president of Buy, says free shipping and reduced book prices were a couple of the major drivers behind the increase.

Figures released at the tail end of the holiday season indicate that retailers were poised to record strong sales. ComScore Networks, which measures consumer behavior on the Internet, reported that overall sales reached $1.9 billion for the week ending Dec. 20, a 19% increase over 2001. Spending for nontravel goods and services increased 18%, to $1.4 billion, while travel spending was up 21%, to $474 million.

From Nov. 1 to Dec. 20, sales reached $12.6 billion, up 29% from a year ago. Home and garden was the fastest-growing major merchandise category--not surprising because of robust home sales last year driven by low interest rates. Home and garden sales were up 78%, to $555 million, followed by furniture and appliances (up 75%, to $171 million), and toys (up 61%, to $396 million).

The largest sales in terms of dollars were in computer hardware, which had reached $1.6 billion by Dec. 20. However, that figure was down 1% from 2001, a reflection of the overall slump in the high-tech market. Rounding out the top three were apparel and accessories, up 31%, to $1.5 billion, and consumer electronics, up 21%, to $1 billion.

Despite the impressive sales figures, online sales still represent just slightly more than 1% of all retail sales, according to the Aberdeen Group. But the market research firm projects online sales for 2002 will exceed 30% growth over 2001.