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Cyber Monday: More Shoppers, Deeper Discounts

Ecommerce and the economy
The holiday shopping season begins in earnest the day after Thanksgiving, known as Black Friday, when many retailers throw open their doors as early as 4 a.m. to welcome in the groggy bargain hunters with special "doorbuster" deals and one-day specials.

Not to be left out, the Internet has its own counterpart.

It's become known as Cyber Monday -- the Monday after Thanksgiving when the workweek resumes and e-commerce sees its first major uptick as employees begin their holiday shopping on company time.

Shop.org, the online retailers' trade group that coined the term, is projecting that 85 million Americans will shop online either at home or at work this Cyber Monday. That's up from last year's mark of 72 million, but an increase in the number of shoppers might not translate into higher sales, as many analysts are expecting shoppers to spend less this year than last.

Online metrics firm comScore notes that Cyber Monday has been an uncannily reliable indicator for how online retailers will fare throughout the holiday season. For the past three years, year-over-year spending growth on Cyber Monday has been within two percentage points of the growth rate for the overall season.

But the numbers are different this year. On average, the past three holiday seasons recorded annual spending growth of 23 percent. Through the first 28 days of November, comScore reported that year-over-year spending had dropped 4 percent. The firm is projecting flat growth for the season, though Chairman Gian Fulgoni said the choppy economy makes projections difficult.

"With so much volatility right now in the variables that influence consumer spending, predicting where this online holiday season will end up has been far more challenging than in previous years," Fulgoni said in a statement. "That said, Cyber Monday may well prove to be an important indicator of whether the decline in spending that we've seen during the first few weeks of the online holiday season will continue for the balance of the year."

Last year, online retailers posted $731 million in sales on Cyber Monday, according to comScore. If the flat-growth prediction holds, that mark could be roughly in line with today's final tally.

Three days ago, on Black Friday, e-commerce spending inched up 1 percent from last year to $534 million. By contrast, Black Friday spending in 2007 had shot up 22 percent from the same day the previous year.

At a time when consumer confidence is slumping and many people's disposable income is on the wane, retailers are competing more aggressively with promotions and discounts, according to Shop.org.

In that spirit, the association is hosting CyberMonday.com, a shopping portal offering discounts and promotions from more than 600 of its members.

The expectation of deep discounts suggests to some analysts that the flat growth in aggregate spending will only tell part of the story, as aggressive promotions could weigh on profits, and that the bellwethers might be the best bets.

[cob:Special_Report]"We believe that holiday season online retail sales will be roughly flat with last year, but related margins will be challenged at best," Standard & Poors analyst Scott Kessler wrote in a research note.

"We think consumers will gravitate toward better-known and more stable businesses, including those owned by companies like eBay," Kessler said, reiterating his "buy" opinion for the e-commerce giant.

J.P. Morgan analyst Imran Khan conducted his own survey of online shoppers, arriving at largely similar conclusions. To Khan, who also looks for flat growth this holiday season, Amazon (NASDAQ: AMZN) is emerging as the clear leader in e-commerce.

One-half of online shoppers polled by J.P. Morgan said they planned to shop at Amazon this year. Amazon's lead over eBay (NASDAQ: EBAY), its nearest competitor, increases among higher income brackets, according to the survey.

Khan's research also highlighted the extent to which the largest traditional retailers, particularly Wal-Mart, Target and Sears, are becoming mainstays of e-commerce. The percentages of shoppers who plan to go to each of those stores' sites this holiday season posted double-digit increases over last year.