Internet sales better than expected

NEW YORK -- The first quarter, usually a sleepy time in the retail business, turned out to be unusually busy for online merchants.

The pace of Internet sales, which picked up momentum after Sept. 11, further accelerated in the first three months of 2002, fed by an improving economy, an influx of new shoppers on the Web as well as increased spending from previous customers, according to company reports released this week.

On Tuesday, Amazon.com, defying critics' contention that its business was stagnating, reported a net loss smaller than Wall Street projections and said sales grew faster than anticipated. The industry bellwether credited the improvement to a combination of price cuts and offers of free shipping.

Meanwhile, 1-800 Flowers, a Web site that sells flowers and other gifts, announced a slight profit for its fiscal third quarter -- its second straight period of profitability -- beating Wall Street projections of a 2 cent loss. Sales met expectations, but the company was able to attract a larger-than-anticipated number of new customers even with a decrease in marketing spending, CEO Jim McMann said.

Online jeweler Bluenile.com, which achieved a 10 percent sales gain and met Wall Street's profit expectations for the first quarter, has had a 30 percent increase in April from a year ago, according to Diane Irvine, chief financial officer.

And Bluefly.com, which sells discounted designer goods, announced a smaller-than-expected first-quarter loss and said it is even more confident it will be profitable by the fourth quarter.

Gaining momentum

"It is typical of emerging industries to usually top out. This industry slowed down and is now reaccelerating," said Chuck Davis, chief executive of Bizrate.com, a Web site and research firm that tracks and compares 2,000 online sites. He noted that the number of new shoppers on the Web is gaining momentum.

Bizrate.com estimated that this year's first-quarter Internet sales of new goods, not including travel, soared 41 percent to $11.6 billion, exceeding expectations of 27 percent growth. The better-than-anticipated first-quarter results prompted the Web site to raise its expectations for sales growth this year to 44 percent from 26 percent.

In a separate report, comScore Networks Inc. said Internet sales, including travel, generated $17 billion for the first quarter, representing a 48 percent increase, compared to a year ago. Online sales, excluding travel, totaled $10.1 billion, reflecting a 30 percent growth from a year ago.

According to Bizrate.com, Internet sales rose 24 percent in 2001, helped in part by a rush of new Web users who logged on to donate money to various charities following Sept. 11 and then became shoppers.

Surprised analysts

There were 66 million new online shoppers at the beginning of this year, and Jupiter Research expects that figure to increase to 82 million by year end, representing a 24 percent gain. That was on top of last year's 34 percent rise.

The strong first-quarter performance came as a surprise to analysts and retail executives because the period is traditionally slow, following the holiday season.

Executives also were heartened by the increase in average purchases. At Bluenile.com, officials said sales of big diamonds, defined as two or more carats, doubled in April from a year earlier.

According to comScore, many retail categories did well, particularly the bruised travel industry, which had an 87 percent sales gain from a year ago.

Internet executives acknowledge that the fight for consumers' dollars online remains fierce. For example, free shipping offers with a minimum purchase -- a common strategy last Christmas -- remains popular with many sites.

"E-tailers are fighting for share and loyalty and the way to get that is to offer bigger discounts and shipping offers," Davis said. "Offline, loyalty is created geographically. Online, loyalty has to be earned on every purchase."