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msnbc.com

The crowds, the traffic and the screaming children -- for many, the holiday shopping season is a stressful affair. But this year an ever-growing number of U.S. consumers will shun the annual melee in the malls and use the Internet to do their shopping. The key driving factors, say analysts, are convenience, bargains and seasonal promotions like free shipping.

Major Market Indices

Retail industry observers are expecting a good 2003 holiday shopping season — the best since 1999 — but traditional retailers won’t be the only stores seeing strong demand. If early indications are anything to go by, Internet stores could be crammed with virtual shoppers.

It’s still too early to call the e-commerce industry fully-grown, analysts say, as it still represents a small portion of the overall retail pie, but it is showing signs of maturity.

Fueled by an improving economy, enhanced technology, the growth of broadband Internet connections and higher consumer demand for products such as apparel and home decor, analysts expect Internet retailers to see an exceptional holiday shopping season this year.

“Last year was a down year for most online retailers, but it was expected because the economy was struggling and many brick-and-mortar retailers offered deep discounts,” said Carrie Johnson, senior retail analyst at Forrester Research. “This year the economy’s in a better spot and e-retailers are getting better at drawing customers to their sites.”

Incentives entice Web shoppers
Incentives such as free shipping also continue to draw customers in, said Johnson. In the period between Thanksgiving and Christmas, she expects online holiday sales to grow by a whopping 42 percent to $12.2 billion, up from $8.4 billion last year. Other analysts estimate online holiday shopping will grow between 20 and 30 percent from 2003.

Traditional retailers, by contrast, are expected to see growth of only about 3-5 percent.

Johnson points out online retailers have improved their customer service and delivery times. They have also worked to eliminate the sorts of technical glitches that plagued them in the 1999 holiday shopping season. And in many cases they are also waiving, or greatly reducing, shipping charges, the main reason consumers say they won’t shop online.

“Free shipping is going to be the big online holiday shopping event,” Johnson added. “Retailers that sat on the sidelines of the free-shipping bonanza last year are jumping on the bandwagon this year,” she said, adding that some online retailers have found it to be a good way to draw in customers.

“Because of the restrictions and limitations, most people don’t qualify for it, but when you come to check out at a site you just go ahead and buy,” said Johnson.

Online retailer Amazon.com has extended a free shipping offer on orders over $25 started last year, but restrictions apply for certain products said Chris Bruzzo, a spokesman for the firm. Still, Amazon sees the promotion as key to luring customers.

“Consumers say convenience, followed closely by price, is their number-one consideration,” noted Bruzzo. “Free shipping takes away the concern some consumers have that they have to pay extra to shop online. But it can be easily matched by other retailers ... but we think it has to be matched with reliability and trust.”

Bruzzo noted that Amazon’s net sales for the fourth quarter of the year are expected to rise between 23 and 34 percent from the same period in 2002.

Jewelry retailer Ashford.com is offering customers free ground shipping on all orders over $150. “Free shipping is very important,” said Michael Dell’Arciprete, Ashford’s head of marketing. “This year we expect a large amount of first-time customers and many of them might ask why they don’t just go to the mall to pick up a product instead of adding on the cost with shipping.”

Consumers appear to be warming to the offer, he added. “We’re seeing customers buy something extra to get over $150, so our average order size is increasing.”

An important driver of sales for companies like Amazon — which has recently diversified into new product ranges such as apparel and gourmet food — is consumers’ willingness to shop online for a wider array of products, according to Graham Mudd, an analyst at comScore Networks, a consulting firm that tracks online browsing and buying behavior.

“In previous years, people bought books and movies online; now we’re seeing consumers shop for larger-ticket items, like refrigerators. It’s indicative of a willingness to spend more online,” Mudd said, noting that early indications of shoppers’ online research in October show the fast-growing retail categories this year will be apparel, toys, home appliances, jewelry and watches.

Mudd added that consumers are taking advantage of an increasing trend among retailers to offer customers the ability to pay for their products online and pick them up at a store.

Shopping 'bots' hot
Comparison-shopping sites like BizRate.com and PriceGrabber.com — also known as “bots” — which allow shoppers to compare prices for products between sites, are also gaining popularity, he said.

“This season, more than any other, we’ll see a continuation of past online shopping trends,” said Mudd.

“We’ll break last year’s record for online sales, but we’re not growing at a faster rate. Consumers are becoming increasingly sophisticated online shoppers, so we’re seeing shipping offers and other major shopping incentives, and there are new product categories and types of things people are buying online,” he said.

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