Internet Sales Show Big Gains Over Holidays
Online retailers, whose growth was expected to level off after a decade of dizzying gains, experienced a stellar holiday season, according to two preliminary reports released yesterday, as traditional stores like Wal-Mart and Target cemented their place on the Web.
Context & Ripple Effects
After ten years of steep gains, the consensus heading into the season was that online retail growth would flatten. Two preliminary reports issued this week say the opposite happened: the 2005 holidays were a standout year, and the surprise driver was not Web-native sellers but mass merchants — Wal-Mart and Target both confirmed to have cemented their place on the Web.
The infrastructure for this was visible in advance; the broadband buildout reaching more households through 2005 was already being chronicled by writers like Om Malik (his October broadband note among them). What changed this season is who used the pipe: store brands proved they could capture holiday demand online, not just pure-play dot-coms.
First-order effects
- Wal-Mart and Target exit the season with their websites established as a mainstream second storefront, eroding the channel advantage that Web-only retailers had counted on for differentiation.
- The two reports hand traditional retailers evidence that online demand did not level off, strengthening the internal case for continued e-commerce investment going into 2006.
Second-order effects
- Big-box rivals that treated the Web as peripheral now face pressure to fund comparable online operations, since the season demonstrated that shoppers will buy mass-market goods from store-brand sites.
- Pure-play online sellers lose pricing and convenience cover: when Wal-Mart and Target extend store assortments online, holiday traffic splits across channels and comparison shopping tightens margins.
Third-order effects
- If the pattern holds, e-commerce stops being a separate industry and folds into general retail, with competitive advantage shifting toward whoever can combine physical scale with Web distribution.
- A sustained multichannel push by mass merchants sets up the longer question of how regulators and competitors treat retail concentration once the same few chains dominate both offline and online holiday demand.
The trend: Holiday e-commerce is shifting from a Web-native specialty channel into a standard extension of mass-market retail, with big-box chains converting offline scale into online share.