E-tailers Await Fall Buying Frenzy

Do strong sales in July at your local Gap store or car dealership
translate into good news for e-tailers in the upcoming holiday season?

The answer is yes.

Commerce Department figures released Thursday show that total retail
sales rose by a higher-than-expected 0.7 percent in July.

“What it says is that the economy is sound and people are buying,”
according to Promod Haque, a general partner at Norwest Venture
Partners. “And that’s good for online retailers, because the number of
purchases made through the Internet is growing dramatically.”

Indeed, Forrester Research projects online retail sales will go from
$7.8 billion this year to $108 billion in 2003.

For e-tailers, July’s retail sales give them even more reason to look
forward to the fall shopping surge. The E-tail sector has lagged behind
most others all summer. During the current slump, only the Portal sector
has averaged markedly higher average losses per share. And in the
four-week rally that sent Internet stocks soaring into early July,
e-tailer stocks gained far less ground on average than those in any
other sector.

Part of that is seasonal, of course. Retail sales usually soften during
the summer months. But the sector also has been plagued by concerns
about cutthroat pricing eliminating all but a handful of players, and
the perilous fall of Amazon.com, whose stock trades today at less than
50 percent of its value in late April. Amazon.com, at least for now, is seen as
a bellweather stock for the Internet in general, and e-tailers in
particular. The market’s reservations about the reigning online retail
king dampens enthusiasm for the entire sector.

E-tail stocks probably will continue to flounder at least through this
month. The big hurdle to get over comes Aug. 24, when we’re expected to
find out from Fed Chairman Alan Greenspan whether there will be a hike
in interest rates.

After that, the year’s real buying season begins, and you can expect
more purchases than ever through the Internet, and increased optimism
among investors about the future of online retailing. Don’t be surprised
to see the e-tail sector leading an Internet rally by October or November.

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