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A Good Retail Season

Positive Results and a Move to Mobile Commerce in 2010

January 2010

That whooshing sound heard on Christmas morning was not the sound of Santa’s sleigh launching its return trip to the North Pole. It was the collective sigh of relief by America’s retailers, as they squeaked through an intensely uncertain holiday season with positive growth numbers. Put in perspective, though, a little bit of good news for the holiday season is a modestly upbeat flourish on what is otherwise still a very challenging retail market.

Retailers and consumers played a cat-and-mouse game from Black Friday right up until the night before Christmas. Shoppers, still keenly uncertain about the economy and their paychecks — and remembering last year’s unprecedented pre-holiday discounts — held out for bigger mark-downs, and aggressively shopped competitors for price, often on their phones right in the store aisle. By December 9, consumers were only about 47% done their shopping; almost 20 percent of shoppers had not even started yet. 1The Wall Street Journal, “Chain Stores Avoid Deeper Holiday Discounts,” by Elizabeth Holmes and Rachel Dodes, 12/18/09; survey by National Retail Federation And as late as December 22, more than 40 percent of consumers hadn’t finished their holiday shopping, according to a survey reported in The Wall Street Journal. This was the highest rate of procrastination in a decade. 2The Wall Street Journal, “Holiday Cliff Hanger: Stores Hope Last-Minute Shoppers Boost Season,” by Elizabeth Holmes, 12/22/09; survey by America’s Research Group and USB Investment Research

Retailers, too, had last year’s panic-ridden season in mind, and kept their inventories lean, held (mostly) to their planned promotion schedules, and waited out the customers. In the end, consumers spent at a good rate and got decent deals, and retailers for the most part eked out a bit of growth and avoided setting a consecutive record for worst year ever.

As has been the trend, online enjoyed significantly better growth than the overall industry, though not the double-digit numbers online retailers have previously enjoyed. Consumer satisfaction with the online channel continued to improve incrementally this year. And mobile became a serious factor on the retail scene.

Round-Up of The Numbers

The U.S. Census Bureau reports overall retail and food services sales up 5.4 percent for the month of December year-over-year, though down 0.3 percent from November. The Census Bureau’s preliminary tally for all of 2009 shows a decline of 6.2 percent, another confirmation that the economy is still far from out of the woods, although the year ended with a positive trend, showing an increase of 1.9 percent October – December. 3U.S Census Bureau News, “Advance Monthly Sales for Retail and Food Services, December 2009, ”U.S. Department of Commerce, 1/14/10

Pure consumer shopping sales — not counting automobiles and gas — grew at a less jolly rate. Thomson Reuters put the December growth rate at 2.9 percent year-over-year, as reported in The New York Times, noting also that about 75 percent of retailers finished ahead of analysts’ estimates. 4The New York Times, “Retailers See Holiday Sales Rebound from Grim 2008,” by Stephanie Rosenbloom, 1/7/10 The Wall Street Journal reports MasterCard’s SpendingPulse tally of Thanksgiving-to-Christmas sales showing a 3.6 percent bump over 2008. While that is a healthy growth number, it barely recoups the 3.4 percent hit sales took in the same period in 2008. 5The Wall Street Journal, “Late Holiday Shopping Puts Retailers Ahead,” by Ann Zimmerman and Rachel Dodes, 12/28/09

That last statistic is the big footnote to all the sales numbers: “as compared to a terrible 2008.” There wasn’t much growth beyond regaining ground that was lost in 2008. The extra shopping day on the 2009 calendar was probably largely negated by an unusual early snowstorm that dumped as much as 24 inches of snow on the mid-Atlantic and Northeast on December 19, the Saturday before Christmas, which was supposed to be the busiest shopping day of the season. It is likely that many of those snowbound shoppers moved online to make their purchases.

The bottom line for the official holiday season, encompassing the full months of November and December: a 1.1 percent increase to $446.8 billion, according to the National Retail Federation. 6National Retail Federation, “Holiday Season Ends On High Note As Sales Increase 1.1%, According to NRF,” 1/14/10

Online Closes in on Billion-Dollar Day Mark

Online retail saw four times the growth of the overall sector for the full November-December holiday period. comScore reports a 4 percent boost year-over-year, with total retail e-commerce sales of $29.1 billion. The season saw a handful of $800 million-plus days, and the first-ever shopping day to break the $900 million barrier, with $913 million in online sales logged on “Green Tuesday,” December 15. 7comScore, “comScore Reports $29.1 Billion in U.S. Retail E-Commerce Spending for Full November–December Holiday Season, Up 4 Percent vs. Year Ago,” 1/6/10

“We continued to see an evolution of customers continuing to use the Internet as both a research tool and a purchase tool over the Christmas holidays,” said Simon Rodrigue, AVP of e-commerce and interactive marketing for Sears Canada. “And I think that accelerated even more this holiday season. A little more than we expected. I think it was customers wanting to make sure that they were getting the best value for their dollar in this economy.” (SeeBenchmark’s full interview with Simon Rodrigue.)

Typically, Green Monday, the Monday that falls with at least 10 days to go before Christmas, is the biggest online spending day. It was impressive at $854 million, but this year it dropped back to be the fifth busiest online day, behind Green Tuesday, Cyber Monday, Cyber Tuesday, and Green Wednesday. All told, comScore reports nine days that broke the $800-million mark online in the holiday season. 8ibid The Green days, in particular, lived up to their name for online retailers.

Mixed Bag of Winners & Losers

Patterns are difficult to discern in the various retail sectors. In December, high-end department stores did very well, according to Retail Forward. Nieman Marcus bumped 5.9 percent, Nordstrom jumped 10.8 percent, and Saks led the pack at 11 percent for overall sales growth; same-store sales tracked slightly lower. Go down a tier or so, though, and except for Kohl’s, which moved ahead 8.8 percent (4.7 percent same-store), most department stores were flat or down. 9Retail Forward, “December 2009 Retail Sales” As might be expected in a persistent down economy, discounters enjoyed solid gains, with T.J. Maxx, Marshalls, and Ross all putting up double-digit growth numbers. 10The New York Times, “Retailers See Holiday Sales Rebound from Grim 2008,” by Stephanie Rosenbloom, 1/7/10

Interestingly, teen-targeted stores posted a gaping spread of results, from a precipitous drop of 19 percent for Abercrombie & Fitch, to Aeropostale at the opposite extreme, which logged a 10 percent gain. 11ibid

Online, the biggest category gainers in November–December were jewelry and watches at 20 percent, consumer electronics at 15 percent, followed by event tickets, computer hardware, and books and magazines at 8, 7, and 6 percent respectively, according to comScore. 12comScore, “comScore Reports $29.1 Billion in U.S. Retail E-Commerce Spending for Full November–December Holiday Season, Up 4 Percent vs. Year Ago,” 1/6/10 Apparel, which was a big driver overall according to the National Retail Federation, evidently did not even move the needle online.

Web Performance Mirrors Modest Gains

No other time of year puts stress on retail sites like the Christmas holiday season. Surges in traffic and page views, and complex checkout transactions, if not accurately anticipated, can overtax a site’s infrastructure and undermine the user experience. Like the financial results, the performance report for the 2009 holiday season shows modest improvement, with mixed results for some individual sites.

“Retailers are getting better as a whole,” says Keynote Director of Internet Technologies Ben Rushlo, “but surprisingly, we’re still seeing sites struggle around Black Friday, Cyber Monday, and intermittently throughout the holiday season. It’s surprising that we continue to see issues at the magnitude we’re seeing them, given that retail is certainly no longer a niche market online. It’s a real channel for these retailers.”

Many of the large retailers are delivering an acceptable customer experience. Indeed, overall satisfaction with online retail for the holiday season was up nearly 7 percent, according to ForeSee Results’ E-Retail Satisfaction Index. But like the financial results, a good bit of the improvement was recovering from poor numbers in 2008. None of the top 40 sites measured registered a decline in satisfaction. Amazon was at the top of the list, with an 87 on ForeSee’s 100-point scale, followed by QVC at 83, Cabela’s at 82, and Apple at 81. Not surprisingly, pure-play Internet retailers had a four-point edge over their multi-channel peers. 13ForeSee Results, Holiday E-Retail Satisfaction Index (US), “Online Retailers Find a Reason to Celebrate in Dismal Economy,” by Larry Freed, 12/30/09

One site that performed beyond expectations was Sears Canada, though no doubt it was somewhat of a cliffhanger for their Web staff — Sears Canada rolled out a complete overhaul of their site just prior to the busy holiday season.

“We essentially changed everything from a platform perspective, a navigation perspective, a technology perspective,” Rodrigue explained. “It really allows us to have a platform that can build for the future. Not only did we make the site faster for our customers, we made it easier for them to use.”

While no site roll-out is perfect, Sears Canada managed to debut its new site without major glitches. “We did heavy load testing up front and then full monitoring throughout the season,” Rodrigue says. “It definitely [performed] above our expectations.”

A Bar That Keeps Moving Up

The Internet never stands still, and that’s a problem for most sites, but especially for highly competitive retail sites. No sooner does a site get all its kinks worked out, delivering a satisfying experience to the consumer, than a new technology or functionality debuts that quickly becomes de rigueur and sends the Web quality team scrambling to integrate. And in the process, new performance challenges are created.

“On one level, it’s like they’re running uphill,” says Rushlo. “They optimize and the site’s running well, and then the next thing you know everyone wants to have very large images with zoom, or additional tracking, or ads, or something else. So it’s a challenge for them to keep their performance where it needs to be.”

Cyber Monday Stresses Sites

Black Friday was busy, but Cyber Monday pushed a number of the major sites in the Keynote Top Retailers Index past the breaking point. “We saw a total of six sites that we would classify as ‘meltdown’ on Cyber Monday, versus two on Black Friday,” Rushlo says. “We also had nine sites with major slowdowns. Cyber Monday was definitely the worst day. There were many more issues. And as we’ve typically seen, apparel was again lagging. Apparel typically is a bit more problematic in terms of quality than other verticals.”

Prepping for 2010

It’s a new year. And that means retailers have a new opportunity to get it right for the 2010 holiday season, which is just 10 short months away. Those sites that will be the big winners in 2010 are evaluating their 2009 performance while it is still fresh, and making their plans to deliver fast, flawless experiences for shoppers all year, and particularly for the holidays.

“Performance management, especially for retailers, has to be top-of-mind as much as search optimization,” Rushlo says. “You have to care about the user experience from a performance perspective. From that flows a lot of things, like load testing early. You have to be thinking about load testing in the summer at the latest.”

Successful performance management is ingrained in the culture of an organization. It’s a matter of recognizing that you can have the best content in the world, and the best deals, but if you’re not consistently delivering a fast, successful user experience, shoppers will go elsewhere.

“Performance for us is one of the streams we focus on all of the time,” says Sears Canada’s Rodrigue. “For us it’s 12 months of the year. It’s not just going to be as we go into Q4. It’s — how can we improve performance all the time so it doesn’t become that rush towards the end of the year?”

“The complexity of sites now demands constant scrutiny and attention,” Rushlo adds. “Retail sites in 2010 are exponentially more complex than retail in 2005, or even in 2007. That complexity makes it flat-out harder to manage. It makes it harder to improve, harder to drive long-term performance improvements. You have to have ongoing measurement in place.”

Mobile: A Preview of Things to Come

It’s safe to say that mobile played a bigger role in the 2009 holiday season than ever before, and will likely be a driving factor in 2010 holiday sales. In the 2009 season, according to a Deloitte survey reported in The New York Times, 20 percent of shoppers intended to use their mobile phones for shopping; of those, 45 percent would use them for research, 32 percent for coupons or reviews, and 25 percent to actually make purchases. 14The New York Times, “Mobile Phones Become Essential Tool for Holiday Shopping,” by Claire Cain Miller, 12/18/09

Twenty percent is a number that can’t be ignored, and it is no doubt a harbinger of things to come. In the 2009 season, the iPhone still owned the lion’s share of the mobile browsing market. But with Android handsets coming on strong, and the major carriers aggressively vying for smartphone customers, 2010 could very well be the year when mobile commerce achieves significant traction.

From a performance perspective, though, mobile still has a long way to go. Keynote measured mobile performance for the period from late November to the beginning of January, and found home page load times ranging from a best case of 8.3 seconds to a worst case of more than 34 seconds. (Benchmark has previously reported that, on their computers or the “wired” Web, a large percentage of users will abandon sites that take longer than two seconds to load.)

Mobile Page Load Rankings, Holiday 2009

Inconsistency is the rule rather than the exception when it comes to mobile commerce sites. On six out of ten sites measured, a small percentage of visitors experienced extremely long home page load times. Several sites saw performance degradation of more than 25 percent during their busiest traffic hours. Only two sites achieved overall availability better than 90 percent (versus 99+ percent availability on a computer), and three sites never averaged above 80 percent availability.

“Consumers on the wired Web are used to much, much faster times, and often expect pages to load in two seconds or faster,” says Keynote Senior Consultant Ken Harker. “Even the best mobile sites are two to three times as long as that, despite being optimized heavily for the mobile phone experience. The worst sites are taking over half a minute on average to load each page.”

Is There an App for That?

Mobile apps are an obvious and immediate solution to the dismal performance of mobile Web sites. Side-stepping the performance issues of mobile browsers and making the best use of cellular bandwidth, apps give the retailer more control over the user experience and can leverage the increasing capabilities of the iPhone, Nexus, and their rivals, particularly location-based services.

“The difference between an app and a site on a phone is like night and day,” says Rushlo. “Using a Web browser on the phone today makes you feel handicapped. But an app is built understanding the challenges, the handicap of accessing the Web through a phone. If you’re serious about mobile commerce, you have to make it as easy to use as possible. Apps definitely accomplish that.”

Whether it’s through a site that’s simplified and streamlined for mobile devices, or dedicated apps that create a uniquely mobile experience, 2010 is likely to be the year that mobile commerce comes of age. “Mobile is like reliving the whole Internet experience over again,” Rushlo observes. “Just like the Internet and computers, it’s going to become part of the framework that we live in every day. 2010 is probably going to be a pretty good year for that.”

Succeeding in 2010

Assuming the right product mix and the right price, the significant keys to online retail success in 2010 will be performance and accessibility. Wired Web sites need to achieve flawless availability, reach the magic two-second page load threshold, and not miss a beat under the heaviest traffic volume. Mobile has to be taken seriously as a channel, with a sharp focus on user experience, whether it’s through a mobile-optimized site or a dedicated app, in either case leveraging smartphones’ geo-location capabilities to drive store traffic or mobile purchases. Retailers that concentrate on these two areas early in the year will optimize their share throughout the year and during the all-important holiday season — no matter what whims the economy follows.

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