Web Sites Wage Holiday Price Wars

Nov 23, 2008 by Mark Maier

The New York Times article reads "Web Sites Wage Holiday Price Wars" and if you read yesterdays post, this probably is not good news for the economy as it leads to deflation and a downward spiral....

"Traditional retailers are facing the same problem, of course, and discounts are proliferating from suburban malls to Fifth Avenue. But the price-cutting is fiercest on the Web, where customers can easily shop for the best price with a quick search on Google or on specialized shopping engines like Shopping.com. Online, the competition is only a click away. For many Web sites, the discounts and price cuts are the only way to hold on to customers as online buying unexpectedly plummets. The research firm comScore reported Tuesday that sales growth on e-commerce sites slowed to a meager 1 percent in October compared with the previous year ? the lowest rate ever for online retail and well down from the industry?s typical 20 percent gains.

Sales of music, movies, books, computer software, flowers and gifts have been hit the hardest, with double-digit declines, comScore said. ?A lot of these retailers aren?t running on big margins to begin with, so it?s pretty challenging,? said Gian Fulgoni, chairman of comScore. ?But it?s a Catch-22 situation: They have to run these deals because that?s what consumers are looking for this season.?

Many are being forced to offer free shipping, lower their margins, and even develop off-site clearance sites to move merchandise at below cost to keep cash flow....

"To exacerbate matters, a major expense for online retailers seems to be rising: the cost to advertise products on the search engine Google, the source of considerable traffic and visibility for most e-commerce sites.

Over the last year and a half, prices for text ads related to women?s fashion have quadrupled, say apparel retailers. In the popular gifts category, the price to advertise alongside results for common search queries like ?gift baskets? jumped 50 percent from the 2006 holidays to 2007 and is expected to climb again this year.

For Delightful Deliveries, a 10-year-old company that was selling gift baskets online, that extra expense ? plus the challenge of competing on price against its own wholesalers, which also sell on the Internet ? proved too much. The eight-employee company, based in Port Washington, N.Y., closed in September.

Eric Lituchy, the founder of Delightful Deliveries, is now watching the Internet price war from the sidelines. ?I think everyone is praying that this economy does not get any worse and that people find reasons for optimism and spend some money at Christmastime,? he said."

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