Holiday Shopping 2003: Accommodating the Gift-Seeking Shopper

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1 October 13, 2003 Spotlight Report Holiday Shopping 2003: Accommodating the Gift-Seeking Shopper Ross Rubin, Senior Analyst Core topics: holiday shopping, online retail sales Impetus: Smart retailers understand that advance planning must take place while other seasonal events are being executed. As retailers exit the back to school season, they must brace for the coming holiday onslaught in the fourth quarter. One difference between holiday shopping and other seasonal sales is the widespread emphasis on gifts. Where US Consumers Plan to Shop for Holiday Gifts, 2002 (as a % of respondents) Discount department stores 77% Traditional department stores 53% Internet 46% Specialty retailers 45% Catalog 37% Note: multiple responses allowed Source: National Retail Federation, BIGresearch, October emarketer, Inc. Issues What factors do consumers consider in choosing their holiday shopping venue? How can online retailers take measures to address sources of holiday shopping stress? How well are consumers anticipating the gift needs of recipients, and what are the implications for gift certificates? Analysis In the fourth quarter of 2002, online retail sales reached $13.8 billion and accounted for 1.6% of total retail sales, according to the U.S. Department of Commerce. Both numbers represented the highest figures to date and implied a record online holiday shopping season. The growth pattern appears to be continuing into Department of Commerce data from the first two quarters of 2003 represents an average annual growth rate of 26.9%, which is higher than 2002 s average annual growth rate of 20.9% for the same period. This data likely reflects an economic recovery, which is increasingly seen as less fragile than previous false starts throughout the past year suggested. This online growth should allow Internet retailers to sell products to new and existing customers that they would not ordinarily purchase. It also allows multi-channel retailers to take advantage of increasing integration between online and physical stores. The Source for Internet and E-Business Research and Analysis

2 A. Choosing Venues Consumers now have many channels from which to choose. This can be the case even when shopping with a single retailer. Looking at the last holiday season, consumers still expressed a preference for shopping in physical stores despite the negative reputations for crowds. In fact, two physical locations proved more popular than the Internet in a National Retail Federation/BIGresearch ( ) study. Discount department stores led the way. Several factors likely contribute to this popularity, including: brand impression of the retailer ease of returns the ability to inspect items low prices While an informal review of major offline retailers by emarketer found that nearly all allow in-store returns for many or all items purchased online, this information is not always easy to find on the site. This may cause confusion, since such flexible returns have not always been their practice. Among those that offer instore returns for online purchases were Macy s, Neiman Marcus, Nordstrom, Circuit City, Best Buy, Staples, K-Mart, The Sharper Image and Bed Bath & Beyond. Sears and Wal-Mart also allowed in-store returns, but with explicit exceptions for some items. Despite its spirit of cheer, the holiday season can often bring stress. That level of stress extends to consumers in purchasing gifts. CoolSavings.com ( ) identified three holiday shopping issues that cause stress. Men and women diverged somewhat on the stress level of price and crowds, but both genders identified knowing the right gift to buy as a leading stress factor. Shopping online can reduce this stress in a number of ways: The lack of a physical store eliminates the long lines and crowds that are ranked as a leading cause of stress among men. Comparison shopping sites such as Shopping.com and PriceGrabber.com can ease concerns about finding the best price, although they often do not reflect sale prices, particularly offline. The greater inventory offered online can be helpful in finding the right gift to buy. Best Buy and CompUSA, for example, offer products on their Web sites that are not available in their physical stores. Ipsos-Reid ( ) found that misuse of consumers information topped the list of online shopping concerns during the holidays. This suggests that concerns regarding online shopping during the holidays do not differ significantly from concerns about online shopping at other times. Retailers should ensure that privacy policies and security assurances are spotlighted on shopping sites even as online stores seek to highlight holiday deals. Where US Consumers Plan to Shop for Holiday Gifts, 2002 (as a % of respondents) Discount department stores 77% Traditional department stores 53% Internet 46% Specialty retailers 45% Catalog 37% Note: multiple responses allowed Source: National Retail Federation, BIGresearch, October emarketer, Inc. US Holiday Shopping Issues that Cause Stress, by Gender, September-October 2002 (as a % of respondents) Knowing the right gift to buy Getting the best price Long lines and crowds Female 16% Male 24% 26% 34% 35% 34% Note: n=4,230 Source: CoolSavings.com, October emarketer, Inc. Online Holiday Shopping Issues Posing a "Great Deal of Concern" for US Internet Users, 2002 (as a % of respondents) Having information sold to a third party Having information stolen from a Web merchant's database 56% Receiving unwanted s Transmitting credit card number 36% 42% Transmitting address or other personal information 21% 65% Note: n=1,094 Internet users Source: Ipsos-Reid, November emarketer, Inc. emarketer Spotlight Report: Holiday Shopping

3 B. Holiday Gift Categories Clothing was a top gift category among multichannel shoppers. While apparel purchases decreased slightly in 2002, they still tied with packaged media as the top category and proved slightly more popular than toys and games. ( ) The NPD Group ( ) found that clothing was the most popular category in 2001 and was positioned to lead the way in While apparel sales online have been rising, obstacles to purchasing clothes online include the lack of ability to try clothes on for appearance and size, an inability to feel textures, and colors that display differently on different computers. However, most clothing categories also include accessories such as hats and shoes, which are less subject to size variations. In 2002, most categories registered below their 2001 purchase intent levels, yet books and music were up slightly. This is in contrast to general data that shows CD sales on the decline. Gifts Purchased by Multi-Channel Shoppers in the US, Holiday Season 2001 & 2002 (as a % of respondents) Music, movies and books Clothing and accessories Toys and games Jewelry 35% 37% 71% 71% 75% 71% 68% 69% Holiday Season 2001 Holiday Season 2002 Source: DoubleClick, February emarketer, Inc. Top 10 Gift Categories among US Holiday Shoppers, 2001 vs (as a % of respondents) Clothing 78% 74% Toys 58% 55% Books Music Jewelry Video games Fragrances Home decorations 41% 43% 39% 40% 35% 31% 32% 30% 30% 27% 31% 27% Electronics Housewares 23% 24% 21% 37% Bought in 2001 Plan to buy in 2002 Source: NPD Group, October emarketer, Inc. emarketer Spotlight Report: Holiday Shopping

4 B. Holiday Gift Categories Indeed, according to National Retail Federation (NRF)/ BIGresearch ( ) data, entertainment content in general topped the list of the categories people would most like to receive, although that number includes not only books and music but video games and DVDs, which were not listed in the NPD Group data. Clothing, the most popular category cited by NPD, remained a popular one to receive according to the NRF. Another popular category was gift cards, demonstrating that many consumers would rather have the option to choose their own present. In February 2003, the e-tailing group found that 78% of the surveyed Web sites offered gift certificates and gift cards, up from 72% in the fourth quarter of While popular gifts for children vary from year to year with shifting demand, popular products in the 2002 holiday season generally fell in at least one category: tie-ins with media properties such as Harry Potter and Disney tech-related toys such as PlayStation games and learning toys from LeapFrog classic toys such as Lego and those from Fisher-Price Leading Gifts that Consumers Would Like to Receive during the Holiday Season, 2002 (as a % of respondents) Books/CDs/DVDs/video games Clothing and fashion accessories Gift cards and gift certificates 41% Consumer electronics and computer-related products 39% Home décor or home furnishings 25% Jewelry or precious metal accessories 23% 51% 53% Note: n=7,668 Source: National Retail Federation, BIGresearch, October emarketer, Inc. Holiday Gifts US Consumers Plan to Buy for Girls, November 2002 (as a % of respondents) Barbie/Rapunzel Barbie 46.88% Bratz 6.13% Dora the Explorer 3.33% LeapFrog 3.01% Elmo/Chicken Dance Elmo 2.18% Harry Potter 2.18% American Girl 1.98% Disney-related item 1.77% Fisher Price item 1.56% Playstation-related item 1.56% Note: n=8,569 Source: BIGresearch for National Retail Federation (NRF), November emarketer, Inc. emarketer Spotlight Report: Holiday Shopping

5 B. Holiday Gift Categories In contrast to Mattel s Barbie, Mattel s Hot Wheels toy cars did not dominate the gift list for boys ( ). Indeed, with no gift taking as much market share as Barbie, intent to purchase in the boys gift market appeared more evenly distributed among categories. Video games for consoles such as PlayStation and Game Boy proved more popular for boys than girls. BIGresearch and the National Retail Federation ( ) found that toys proved a popular category among adults as well, although not as popular as the leading categories such as clothing and the packaged content such as books, CDs and DVDs. BIGresearch data is consistent with findings from NPD regarding categories. Gift cards and gift certificates were the third most popular choice. These purchases help the buyer avoid anxiety about possibly purchasing a gift item that the recipient won t like. For many retailers, the holiday season effectively begins on Black Friday, the day after Thanksgiving when many stores launch major sales discounts. Nielsen/NetRatings ( ) found that site traffic on Black Friday was led by virtual department stores and shopping aggregators. Consumer electronics was the leading product category in terms of both traffic and traffic growth. This may be related to extensive discounting on this product category on the busy shopping day. However, consumer electronics is not a leading holiday gift category overall. It is possible that apparel and packaged content (CDs, DVDs, etc.), which lead intent to purchase in several other studies, may be purchased later in the season after more consideration. Holiday Gifts US Consumers Plan to Buy for Boys, November 2002 (as a % of respondents) Playstation-related item 9.17% Spiderman 8.02% Hot Wheels 5.94% Legos 5.63% Harry Potter 5.42% Bob the Builder 5.10% Game Boy-related item 4.48% Yu-Gi-Oh! 3.65% LeapFrog 2.40% Star Wars 2.29% Note: n=8,569 Source: BIGresearch for National Retail Federation (NRF), November emarketer, Inc. Holiday Gifts US Consumers Plan to Buy for Adults, November 2002 (as a % of respondents) Clothing, clothing accessories 59.3% Books, CDs, DVDs 58.5% Gift cards/gift certificates 45.0% Toys 38.6% Note: n=8,569 Source: BIGresearch for National Retail Federation (NRF), Novemeber emarketer, Inc. Leading E-Commerce Holiday Shopping Categories on Black Friday *, 2002 (in thousands of unique visitors and % growth from November) Unique visitors % growth November 2002 Virtual department stores 3,164 51% Shopping aggregators 2,540 47% Consumer electronics % Value-oriented sites % Toys and games % Computer hardware % Apparel % Books/music/video % Home and garden 226-6% Specialty gifts % Note: *friday after thanksgiving - 29 November 2002 Source: Nielsen//NetRatings, December emarketer, Inc. emarketer Spotlight Report: Holiday Shopping

6 B. Holiday Gift Categories Among technology-related shopping categories in the 2002 holiday season, computer hardware and consumer electronics both proved popular with surging growth. According to Roper/ASW ( ), new software was the most popular techrelated holiday purchase by far, with more than twice as many respondents reporting such a purchase than in the next highest category, digital still cameras. comscore Networks ( ) reported that consumers followed through on categories that also ranked high on intent in NPD data. Clothing ranked as the highest single category at over $900 million during the holiday season, dwarfing any other category. Home and garden came in a surprising second and ahead of toys, although both categories grew much faster than apparel. Top 10 Technology Holiday Purchases in the US, 2002 (as a % of respondents) New software Digital camera (still photos) 24% DVD player Mobile phone 21% 23% Broadband or high-speed Internet service 17% Video game console 16% 56% DVD burner or DVD record-able or DVD-rom drive 15% Wireless computing devices 14% CD burner or CD readable/write-able drive 14% Desktop PC 14% Note: n=5,150 Source: RoperASW, December emarketer, Inc. US Online Holiday Shopping Spending, by Category, 8 November-6 December 2002 (in millions) Home and garden Sport and fitness Jewelry and watches Toys Furniture and appliances Movies and video Video games Apparel and accessories Flowers and gifts Event tickets 8 November-6 December 2002 $328 $153 $121 $257 $106 $133 $81 $902 $123 $167 % change vs same period one year ago 72% 67% 66% 61% 51% 41% 38% 26% 19% 14% Note: excludes auctions and large purchases Source: comscore Networks Inc., December emarketer, Inc. emarketer Spotlight Report: Holiday Shopping

7 Company Profile ebay Courts the Gift Market. Online retailers may need to prepare for a new competitor that has not been especially strong for gifts traditionally. While ebay has long made efforts to cater to seasonal gift buying around various holidays, the dominant online auction company made its most visible push last holiday season to cater to the gift market by emphasizing fixed-price items from its stores and the Buy It Now feature that has been the subject of a recent lawsuit. However, it is difficult for ebay to uniformly deploy gift features such as gift wrapping found in sites such as Amazon. In February 2003, the e-tailing group found that 62% of the surveyed Web sites provided search capabilities for online gift registries in the fourth quarter of 2002, up from 46% in the fourth quarter of Amazon has done such a good job encouraging usage of its wish list feature that it has evolved into a kind of alternative payments system for some authors developing Weblogs and shareware online. Webmasters from these sites suggest that visitors show their support by purchasing an item from their wish list. On the other hand, while ebay can never guarantee its selection, it is arguably the ultimate storefront for finding gifts for the traditionally hard to please, particularly if the recipient is a collector of some sort. As the company continues to integrate PayPal, it may pave the way for a more robust gift certificate program. The emarketer View With the allure of great selection, low prices and no lines, online holiday shopping may appeal to more inexperienced shoppers. Taking advantage of available data, retailers should take measures to allay any fears about improper information sharing. Multiple data sources indicate that the leading holiday gift category is clothing, with runners up including packaged entertainment content (such as CDs and DVDs) and toys and games. There is some evidence that consumers look to high-tech categories early in the season, but ultimately spend the highest volume of dollars elsewhere later in the season. Books, CDs and DVDs are popular gifts that, unlike clothing, don t require stocking multiple sizes and can sometimes cross age groups (e.g., Harry Potter books and movies). Highlight them as impulse items. To compete better with online market leader Amazon.com in this and other categories, multi-channel retailers should highlight in-store returns. With clothing as a leading gift category, retailers should consider investing in new technologies that allow consumers to better estimate details such as sizes and patterns. This will help reduce returns. Gift card incentives are becoming a more common alternative to discounts and rebates. Multi-channel retailers that offer gift cards should promote if they can be used in multiple channels. This can help leveraging the online audience to drive offline purchases. Advanced online retailers using purchase history and collaborative personalization technology should make exceptions for gifts, especially around the holidays when gifts for children are prevalent. If an adult male purchases a Barbie doll for his niece, he may not be interested in seeing similar products throughout the year. emarketer Spotlight Report: Holiday Shopping

8 Related Information & Links Related Links Official site for Mattel s leading toy for girls Discount code site that was sued during last year s Black Friday Online retailer focused on gifts Related Charts (as found in emarketer s estat Database) Top 10 Special Occasions Web Sites among At-Home Internet Users in the US, Week Ending 20 July Top Flowers, Gifts and Greetings Web Sites Visited by Internet Users in the US, March US Consumers' Use of Gift Cards Online, Suggested Key Words for estat Database: holiday shopping e-commerce online retail sales apparel Amazon gifts Contact emarketer, Inc. Toll-Free: Broad Street Outside the US: nd floor Fax: New York, NY sales@emarketer.com The Source for Internet and E-Business Research and Analysis