Discounts Not Enough to Revive Online Retail Sales

--online spending still held up, down 2% compared to 5.5% to 8% for retail as a whole. --online sales were fueld by discounters that aren't likely to continue. Online sales held up better than the rest of the retail market during the dismal holiday period, but the season is still likely to go down as one of the worst on record for the traditionally booming e-commerce sector. While online spending was down just 2% from Nov. 1 through Christmas Eve compared with a drop of 5.5% to 8% for retail as a whole, e-commerce strength wasn't widespread. Instead, it was clustered around several big-name Web sites such as Amazon.com Inc., Apple Inc. and Wal-Mart Stores Inc. Online sales were also fueled by discounts that aren't likely to continue. Overall, in a sector where sales have historically increased 20% annually, this is the first holiday season where online sales haven't grown. E-commerce sales were "not amazing by any stretch," says John Aiken, managing director and head of equity research for Majestic Research. Many traditionally strong ecommerce sites also ended up losing visitors in what is typically their busiest period. Internet auction site eBay Inc.'s traffic dropped 16% between early November and mid-December, while Best Buy Co.'s site experienced a 17% decline in visitor traffic, according to comScore Inc., which tracks Internet activity. The number of visitors to e-commerce Web sites during the period grew less than 1%, compared with growth of about 5% typically. A spokeswoman for eBay declined to comment. Best Buy didn't return a call for comment. What few winners there were online relied heavily on discounts and special promotions such as limited-time deals and targeted email offers to repeat customers this year, say analysts. Discounts were particularly heavy in areas like consumer electronics, where consumers downgraded to cheaper models of items like flat-screen televisions, says Mr. Aiken. "Consumers are hyper-price sensitive in this environment," he says, adding it isn't clear whether they will keep spending as the promotions taper off into next year. Mr. Aiken predicts that retailers will scale back their promotions after flushing out their fourth-quarter inventory and will instead become more cautious about stocking up on first-quarter inventory. Those that played the discount and promotions game won big during the season. Amazon.com, for one, on Friday said sales for the holiday season were its "best ever" due in part to promotions. The tactic helped boost the number of visitors to the site between early November and mid-December by 6%, according to comScore. "We were heads-down focused on providing customers low prices this year," says Craig Berman, a spokesman for Amazon. He declined to comment on how much sales grew or whether there was a corresponding jump in profit pending the Seattle company's quarterly earnings in January. Peter Cobb, co-founder of eBags, says the Denver, Colo.-based company also rolled out shipping promotions and deeply discounted "Web busters" to buoy sales this season. Despite a strong increase in overall traffic, holiday sales for the online bag retailer were flat from last year as the size of the average order declined, he says. Mr. Cobb described the trend as "OK given all that is going on in the financial markets." "The level of discounting we've seen is dramatic," says Andrew Lipsman, director of industry analysis at comScore. And with good reason: "We have seen spending roller coasters depending on whether there was discounting or not." For example, online sales in mid-November were down from 2007 but shot up 15% on Cyber Monday -- the first work day after Thanksgiving -- thanks in part to promotions for free shipping and substantial price cuts. Sales in the two full weeks preceding Christmas were also down from last year before spiking again the weekend before the holiday thanks to another wave of promotions, says comScore. Some online retailers are expected to continue slashing their prices next year to offset concerns that spending will dry up after the holidays. Target Corp., for example, is currently offering up to 75% off online on toys like a lifesize stuffed puppy and ping-pong tables and is offering free shipping on more than 30,000 items. The continued discounting push online comes as the number of visitors to Target's Web site between early November and mid-December fell 9% from last year, according to comScore. A Target spokeswoman says the Minneapolis company won't discuss holiday sales or other results until early January. Doug Anmuth, an Internet analyst at Barclays Capital, says continued discounting is likely to cut into online retailers' profit margins, accelerating the squeeze they are already enduring as e-commerce matures and competition increases. Apart from strong visitor growth at Amazon.com, Apple's Web site experienced an 8% increase in visitor traffic and Wal-Mart's Web site saw a 10% spike in traffic, according to comScore. ComScore's Mr. Lipsman says each of the sites is known for separating themselves from the field -- Amazon by offering some of the widest variety of goods, while Apple provides innovative products and Wal-Mart offers some of the lowest prices. An Apple spokeswoman declined to comment. A Wal-Mart spokeswoman says the company will release holiday sales figures in early January. Another Web site that saw a big increase in visitors was American Greetings Corp., which lets people send free online cards, among other services. In a year when consumers opted to spend less on gifts, the site saw a 47% spike in visitors according to comScore. An American Greetings spokesman declined to speculate on the reason for the increase. —Bobby White contributed to this article.