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Online Stores Start to Wean Shoppers Off Sales

This holiday season, online sales are zooming, even as online retailers offer fewer discounts and turn picky about who shops at their sites.

After two years of relative malaise, online sales grew 12 percent in the first 47 days of the holiday season, according to comScore, to $27.5 billion. That significantly outpaces the growth rate of retail sales over all, which analystsexpect to rise 3 to 4 percent this holiday season.

But online retailers are now protecting their margins with careful offers, dispensing with the promotions of the last two holiday seasons that were meant to drive sales and get rid of extra inventory. Gone are the coupons that give shoppers 40 percent off all purchases. Instead, offers go to selected customers, and are specialized: a discount on wool jackets, free hoop earrings when people spend $100, a “mystery” discount amount that is revealed only at checkout.

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The promotions try to get customers to behave in a certain way. A coupon may seem straightforward, like Drugstore.com offering $5 off a $30 purchase. In fact, it is encouraging one-time customers to browse through several pages of a site and get to know what a retailer offers as they decide what to buy.

“The reason there’s these different promotions and not just the straight dollar-off or percent-off promotions all the time is there are different incentives,” said David Lonczak, chief marketing officer of Drugstore.com. “You may just need a sale, you may have a product you’re long on and you need to get rid of it, or you may be looking to acquire customers with a higher basket,” he said, referring to the transaction price. “You have to be thoughtful.”

Discounting has declined; in November, retailers’ e-commerce revenue from sales of full-price items rose 52 percent versus November 2009, according to MyBuys, which works on personalization offers for retailers.

But less discounting has not tamped down online sales. On Thanksgiving weekend, more than one-third of purchases were made online, versus about 28.5 percent last year, according to the National Retail Federation.

That is because even staunch in-store shoppers are now comfortable buying online, said Fiona Dias, executive vice president for strategy and marketing for GSI Commerce, which provides e-commerce technology to retailers like Toys “R” Us. And the high demand means that online retailers do not have to slash prices to get customers.

“If anything, we’re running tight on inventory because everyone has sold a lot more than they expected to,” Ms. Dias said of the sites she works with. “That’s why we’re not seeing 50-percent-off promotions.”

Given their strong position, retailers are trying to get customers out of the price-wars mind-set that they adopted during the recession.

“At some point, we have to stop and try to go back to where we were because if everyone continues to offer 20 percent, 50 percent off, it’s going to change the market on a long-term scale that it would be too hard to get back from,” said Melissa Joy Manning, who runs an online jewelry store bearing her name. She has stopped discounting, but is giving a pair of silver hoop earrings to customers who spend $100 or more. “We don’t have unlimited resources, so we do try to be as creative with them as we can,” she said.

Like Ms. Manning, other retailers are getting creative with unusually specific offers.

“It’s about margins,” said Andy Dunn, the chief executive and co-founder of Bonobos, a men’s clothing site. While last December, about a third of his revenue came from promotions, this year it’s down to about a quarter, even as he expects his revenue to nearly triple for the month. “There’s less of a need to be highly promotional,” he said. “At the same time, we feel we need to get better at the laser-beam promoting.”

So he is whittling down offers, sending, for instance, a 20 percent offer on suit elements to people who have bought wool pants but not a jacket.

“We don’t have to treat everyone the same,” he said.

Drugstore.com also changes its approach depending on the customer.

That offer for $5 off any purchase over $30 may prompt people to explore the site. “So if a new Drugstore.com customer doesn’t know I sell toys and games, would you think I’d sell a Razor scooter?” he said. “I have to incent you to shop around.”

Consumer Nation - Holiday Central Edition - See Complete Coverage
Consumer Nation - Holiday Central Edition - See Complete Coverage

He would use a percent-off coupon, he said, when he wants to drive overall sales. And he tends to avoid offers like “$10 off your purchase,” because “I would get a whole bunch of people coming in, they would find the product that was 10 dollars and one cent, they would get it and I would never see them again,” he said.

Other retailers are trying to stand out in crowded in-boxes. Bloomingdales.com had a “mystery savings” event last week, in which customers on its e-mail list were sent a code that called up discounts of between 10 and 40 percent at checkout.

“People are going, ‘Well, maybe I’m going to be the one who hits the jackpot,’ ” said Bruce Berman, president of Bloomingdales.com and chief financial officer of Bloomingdale’s. “So they open it at a higher rate.” The tactic helped the store stand out, he said. The day after the Bloomingdale’s e-mail went out, Saks Fifth Avenue also sent one promoting a “mystery sale” online. Saks declined to comment on the promotion.

For Bloomingdale’s, Mr. Berman said, “It worked out to our advantage because whoever shops both will say, ‘I already did that.’ ”

Sometimes, a retailer can be too successful with an online sale, and have to shift tactics on the fly to keep profit up.

At the Gap Inc. sites, which include Banana Republic and Old Navy, the plan was to do heavy discounts on the four days after Thanksgiving. But Friday sales “exceeded our forecast — it was too hot, it was too strong,” said Toby Lenk, the president of Gap Inc. Direct. “So we pulled back on our promotions for Cyber Monday.”

And other retailers have had to devise new tactics after vendors instructed them to stop offering discounts on their brands.

“With the discounting in the last years, the perception from our vendors is that we were discounting their products,” said Pete LaBore, director of customer retention at Backcountry.com.

So the company came up with a new offer — “on our dime,” Mr. LaBore said — that gave $20 off on the site. “It’s totally free money,” the offer said. But customers did not seem to believe it, and Backcountry.com sent another e-mail two days later with the subject line, “Seriously — It’s Free.”

Consumer Nation - Holiday Central Edition - See Complete Coverage
Consumer Nation - Holiday Central Edition - See Complete Coverage

The offer went only to people who had bought, in the past, certain brands or categories in which Backcountry.com now had too much stock, or to people who usually spent enough that “we weren’t just going to have somebody coming in buying a three-dollar pair of socks,” Mr. LaBore said.

It seemed a smart approach; so far, the offer has been profitable, with most people spending much more than $20, Mr. LaBore said.

“We’re trying to get away from the ‘sale, sale, sale’ message, and this is a different way to do that,” he said.

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