EBay and Amazon face threat from older retailers
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More people than ever are expected to shop online this holiday season, but Amazon.com Inc. and eBay Inc. are no longer the clear winners.
The dominance of the two e-commerce giants is being chipped away by a new breed of online shopper drawn to familiar names and lower prices, better Internet-search technology and an explosion in the number of merchants competing on the Web. Some of the biggest beneficiaries of these changes are brick-and-mortar retailers such as Wal-Mart Stores Inc. and Target Corp.
EBay, the online auctioneer, and Amazon, which sells everything from textbooks to pet supplies, remained the nation's two most-visited retail Web sites during last year's holiday season, but Walmart.com and Target.com came in third and fifth, respectively, according to Web tracker comScore Networks Inc. Apple Computer Inc. was No. 4, and the Web sites of electronics retailers Best Buy Co. and Circuit City Stores Inc. were also among the 10 most-visited sites.
About 41 percent of Internet shoppers in the U.S. made their first online purchase within the past four years, according to Forrester Research Inc. That reflects the growing number of homes with personal computers and broadband Internet connections.
Compared with the Web-shopping pioneers of the late 1990s -- typically young, well-off and male -- these newcomers are less affluent and less tech-savvy, Forrester says. They care more about low prices and are likelier to recognize and trust the names of stores they know well, such as Gap or Wal-Mart, over online merchants like Amazon or eBay.
"What we've seen is that the demographics of shopping online have begun to more closely mirror America in general," says Raul Vazquez, chief marketing officer at Walmart.com.
As traditional retailers have ramped up their online operations, the percentage of e-commerce spending that goes to Web-only retailers has declined to 52 percent so far this year, down from 55 percent in 2005 and 60 percent in 2004, according to Majestic Research Corp. of New York.
"The offline players were well behind the Internet specialists five years ago," says Patrick Byrne, chief executive of Salt Lake City-based Web veteran Overstock.com Inc., which sells a range of brand-name merchandise at discount prices. "Now the players like Wal-Mart and Target are as good as the best online players."
Mr. Byrne adds that all the new competition played a role in Overstock posting its first-ever quarterly revenue shortfall last week, which sent its stock price plunging 18 percent.
The e-commerce shake-up is being fueled in part by shoppers like 25-year-old Lindsey Nevins who are relatively new to the Web. Ms. Nevins says she hardly bought anything online until she moved to Overland Park, Kan., two years ago, too far away to regularly visit her family in Tulsa, Okla. Now, she says, when she buys DVDs online to send to her film-buff brother, she visits the Web sites of Best Buy, Wal-Mart and Target, in that order. "I don't feel like I'm just buying from some store that I don't know," she says.
Helped by better search tools and the proliferation of online merchants, longtime Web shoppers also are altering their behavior. Sandy Sansom, a 57-year-old San Francisco resident, began shopping online in the late 1990s on Web sites such as Amazon and Overstock. Now she goes to a broader range of sites. Two months ago, she bought a pair of Vogue brand eyeglass frames for around $80 at BestBuyEyeglasses.com, which she discovered through a Google search. "There's just a ton of new sites out there," she says.
Amazon spokeswoman Patty Smith acknowledges that competition has intensified as the e-commerce market has matured, but said Amazon has kept growing by keeping prices low and giving visitors more choices, even if that means selling them products from another retailer. Amazon, for instance, sells Target gift-certificates on its site.
Online retailers are also competing to ship items more quickly than rivals. Amazon last year introduced a new membership program called Amazon Prime, offering two-day shipping on an unlimited number of orders for a $79 annual fee.
Hani Durzy, an eBay spokesman, says that while the e-commerce industry has become more competitive and more mainstream, eBay has adapted in several ways, such as by buying Shopping.com last year for $685 million. EBay expects Shopping.com, a comparison-shopping site, to help it tap into the large group of mainstream consumers looking for new, in-season items, such as clothing.
To be sure, eBay and Amazon are still growing -- their sales rose 39 percent and 23 percent, respectively, in 2005 -- but they no longer enjoy the triple-digit growth rates they posted in the late 1990s. The coming holiday season, which is shaping up to be one of the strongest years yet for online retail, is expected to serve as a litmus test of their efforts to rev up growth. Consumers are expected to spend $132 billion on Web shopping this year, up 19 percent from $111 billion last year, according to JupiterResearch, a division of JupiterKagan Inc.
EBay, San Jose, Calif., is promoting a new Web site called eBay Express, where customers can shop for items at a fixed price instead of having to bid for them in an auction. EBay Express lists brand-new items alongside used ones. Visitors can add several items to a virtual shopping cart and pay for them all at once. EBay allows only sellers with strong reputations to sell on the eBay Express site, in an effort to reassure potential customers who worry about buying from a stranger.
Amazon, based in Seattle, has branched into new areas such as a video-download service it unveiled in September. And Overstock has invested in new technology that lets it personalize the site's main page for each visitor by tracking the areas of the site that he or she visits. Overstock has also tried to make its site less cluttered by getting rid of overwhelming images and text.
Both eBay and Amazon have aggressively ramped up their spending on new initiatives, including eBay's $2.6 billion purchase of Internet telephone-service provider Skype Technologies SA in 2005 and Amazon's diversification into a host of digital download services. The heavy spending has attracted criticism from Wall Street, which has penalized the companies for having relatively little to show for those efforts so far. This year, eBay stock is down 22 percent and Amazon stock is down 10 percent.
Traditional retailers, meanwhile, are also gearing up to fight for online consumers. Wal-Mart, Bentonville, Ark., last month unveiled a redesigned Web site, adding independent product reviews from CNET Networks Inc., offering advice for matching sets of furniture or outfits, and promising customers the ability to buy any product in four clicks. The goal: to make it easier for mainstream shoppers to use the site. "We basically went with an approach of less is more," says Walmart.com's Mr. Vazquez.
The retailers are also trying to better integrate their online stores with their physical counterparts. Circuit City last year started promising customers that they could order an item online and pick it up at a local store within 24 minutes. This year, Circuit City is training store salespeople to help customers place online orders if a store runs out of a coveted gadget.
Toby Lenk, president of Gap Inc.'s e-commerce division, says the Web sites of the company's Banana Republic, Gap and Old Navy brands have lately attracted the same mainstream, female shoppers who visit their stores. Now Gap, based in San Francisco, is trying to build on that success: Earlier this month, it launched a whimsical Web site called Piperlime.com, which sells shoes ranging from cheap flip-flops to designer boots. Shoes have been a lucrative seller on the Web.
Of course, as the e-commerce industry matures, the offline players will also see slower growth, analysts say. "We're seeing a maturing online shopper," says Patti Freeman Evans, an analyst at JupiterResearch. In the past, new growth for these sites came from new online shoppers, she says. Now that most Web users are shopping online, "they're close to tapped out," she says.
First Published November 16, 2006 12:00 am