Internet retailing during a recession

I confess I am feeling a bit uneasy these days. These are interesting times to be in retail. Having been in business back in 2001, I know what a recession is like, but I also know that it is possible to survive and even flourish during bad times.

I remember sitting at my desk one morning going about business as usual. I happened to check Drudge and saw headlines that the World Trade Towers had been hit. At the time, I had just quit a consulting position and hired my first employee. My business was profitable but just barely.

I remember the shock well, and I remember telling my employee that we might as well quit working because we were not going to do any business. Sure enough, no orders came in the rest of the day except from one customer stuck in the middle of the woods somewhere that was blissfully ignorant of the attack.

Here come the widgets!

According to the National Retail Organization, online retail should grow to $204 billion this year, which represents a 17% increase over last year. (Many experts predicted a 20% increase in 2008.) Considering the economy is in a slump, this is very welcome news to online retailers. I personally am not surprised. At Vitabase, our first quarter was up very dramatically over the same period last year.

As is normally the case, the top categories for online retail include apparel, electronics, and cars.

I am especially interested in some other data in the report. For example, 53% of online retailers are spending their marketing budget on customer acquisition while 21% are more focused on customer retention.

Blogs and Internet Retail

According to Jupiter Research, only 2.6% of online shoppers use blogs for research before making purchases. Of course, that makes some internet retailers wonder if blogs should be part of their marketing strategy.

In my opinion, this study does not provide the answer to that question. It merely indicates that people do not research products on blogs. I have no doubt that this is true. It seems obvious that if shoppers want to research, they are going to go to highly authoritative sites. However, that does not mean that blogs do not offer marketing opportunities, and I know for a fact that blogs do generate sales.

Here are three benefits to blog postings:

Zappos drops price protection and overnight shipping

Zappos has decided that it wants to be known more for customer service than discount pricing. It is eliminating its free overnight shipping guarantee as well as a guarantee to refund 110% of the difference between its price and a lower competitor’s price.

If you are not familiar with Zappos, they sell shoes and other clothing and are one of the largest online retailers (#31 according to Internet Retailer ). They also own a few other sites such as 6pm.com which is more of a discount clothing store.

According to CEO Tony Hsieh, this policy change took place because the goal of Zappos is to be known more for customer service than low pricing.

I find this situation very interesting for several reasons.

Virtual Flowers on Valentines Day?

1-800-Flowers has launched BokayMe.com, a site that allows people to send virtual flowers to each other. The service is free for basic bouquets and up to $3 for enhanced bouquets.

I am 35, and starting to feel very out of touch. I can just imagine how my wife would react to virtual flowers. It reminds me of the guy in college who went around selling fake flower corsages (he claimed that his girlfriend never complained).

I am not a huge fan of 1-800-Flowers because of some things I know about the company and a presentation I heard from Jim McCann (their CEO) last year. That being said, this might actually work regardless of how dumb it initially sounds. Here are some reasons why.

Drugstore.com finally is profitable

Internet Retailer is reporting that Drugstore.com showed a profit of $156,000 on $118 million in sales. Of course, that is a pretty modest net income percentage (.1%), but it is a step in the right direction. For the year, Drugstore.com lost $9 million on $445 million in sales.

I love looking at these kinds of numbers. There are a few interesting takeaways that I see:

1) Slow growth. Drugstore only grew 7% in 2007 and they are projecting a modest 12% increase in revenue during 2008. This growth rate is far below the 20% that online sales are expected to grow across the board.

2008 Predictions for Internet Retail

Everyone else is making predictions, so I guess I will get in on the fun too. The best thing about making predictions is that you will never remember them by the end of the year anyway. (unless I get them right, in which case I will remind you!)

Here goes…

1) Death of the little guy. This is already happening, and the trend is going to continue. It is simply going to become more and more unfeasible for small budgets to compete online. That is not to say that there will be exceptions, but you will hear about fewer and fewer of them.