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Retailers' Shares Fall as Online Shopping Slows

By Joseph Galante
Bloomberg News
Saturday, December 15, 2007

Amazon.com, eBay and other retailers fell in U.S. trading as cash-strapped consumers limited their Internet holiday purchases while waiting for better bargains.

Sales from Nov. 1 through Dec. 11 increased 19 percent, to $20.5 billion, Reston-based ComScore said Thursday. Online sales in November and December could rise 20 percent, a record low for the industry, and slower than the 26 percent pace of a year earlier.

U.S. retailers may see the worst sales growth this holiday season since 2002 as shoppers grapple with $3-a-gallon gasoline and consumer prices that rose the most in more than two years in November. Target, Kohl's and J.C. Penney have responded with discounts of 50 percent or more to lure customers.

"If the consumer doesn't have money and isn't buying, there's only so much the online channel can do," said Larry Freed, chief executive of the online research firm ForeSee Results. "To get a 25, 30 percent growth rate is going to be tough."

Retailers' shares have dropped during the holiday season, with the Standard & Poor's 500 retailing index falling 8.8 percent since the start of November through Thursday, compared with a 3.9 percent decline on the S&P 500-stock index.

Amazon.com, the world's largest online retailer, fell 3.6 percent, to $89.08. EBay, the largest global auctioneer, dropped 4 percent, to $32.70. Circuit City Stores of Richmond decreased 8 percent, to $6.82.

Even though Internet sales, which make up more than 3 percent of total retail sales, have slowed, they still may be the fastest-growing retail channel this holiday season. Online sales may grow to $29.5 billion in November and December from a year ago, ComScore predicted.

"In a rapidly growing market like e-commerce, very high growth rates become more difficult to sustain as the market gets bigger," ComScore spokesman Andrew Lipsman said in an e-mail. "It doesn't mean the growth rate this year is necessarily a sign of weakness."

The slowdown contrasts with government data that showed retail sales in November rose at twice the rate anticipated by economists.

Retail sales increased 1.2 percent in November, the Commerce Department said Thursday. That followed a 0.2 percent increase in October, the agency said.

Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, the research firm ShopperTrak RCT said this week. Traffic in retail stores was down about 12 percent last week compared with the corresponding period a year ago, ShopperTrak said.

Consumers are completing their holiday shopping later than usual, and they're trimming purchases as they pay higher gasoline and food prices. The National Retail Federation forecast a 4 percent increase in holiday sales this year.

Stores may further reduce prices, hurting profit margins, to lure bargain hunters. Target, the second-largest U.S. discount chain, and J.C. Penney, the nation's third-biggest department-store company, missed analysts' sales estimates for November. CompUSA, the 23-year-old computer retailer, said Dec. 7 it will shut down after the holidays.

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