The Gap company's stores have hardly been the hottest spots at the mall in recent months — or even years.
In a market where most retailers are posting single-digit monthly losses, its brands — Gap, Old Navy and Banana Republic — had a combined double-digit drop in September, and Old Navy's sales that month were down a startlingly bad 24%.
But view Gap Inc. through the prism of the Internet, and a different picture emerges. Its online sales are soaring. They were up 50% from 2005 to 2007, more than doubled in the last five years, and are expected to hit $1 billion this year, accounting for about 6% of total sales.
How can putting the same merchandise in a different environment produce such different results? The answer lies in the increasing appeal of the Internet and the steps Gap has taken to capitalize on it. There's more of a democracy in decision-making when a shopping search site or Google is doing your browsing. When people rely on retail preconceptions and feet to find what they want, they might never stop at Gap or Kohl's. But online, it's all there for the perusing.
That's a big reason, along with gas prices and the Internet's attraction to bargain hunters, that websites may offer retailers their only cheer this holiday season. And it's why retailers are paying unprecedented attention to the Web.
"It's the only place you can go for an optimistic outlook" for retail this year, says trends expert Nita Rollins of digital marketing agency Resource Interactive.
Forrester Research predicts online retail sales will grow 12% this holiday season, the slowest growth to date but more than five times the tepid 2.2% increase the National Retail Federation predicts overall in November and December.
"The brick-and-mortar retailers who haven't made online a priority are going to be most challenged this holiday," says Matt Poepsel, a vice president at Web experience manager Gomez. "If their attention wasn't on the Web before, it certainly is now."
Research out Wednesday by NRF's digital division, Shop.org, and shopping search site Shopzilla, shows online retailers even more optimistic: 56.1% expect their holiday sales will be up at least 15% from last year. They, too, predict slower growth: 77.5% of the retailers surveyed last year expected their sales to grow more than 15% — and they were right. Online holiday sales overall rose 19% between 2006 and '07, according to Web marketing firm ComScore.
"Online retailers are resilient, but not immune, to the challenges of this holiday season," says Scott Silverman, Shop.org's executive director.
Shopping online is growing in popularity because not only have websites gotten better, but also people are getting more comfortable with the concept. Amazon.com, launched in the mid-1990s, helped pave the way as consumers became enamored with fast and often free deliveries. Now, some of the biggest growth in online retailing this year is expected to be in apparel. That's partly because holiday shoppers are focusing more on essentials. But it's also because online return policies are often more liberal than in the past (returns are typically accepted at stores), and zoom views and improved photography make it more likely that what you see is what you will get.
The Web has also become a haven for deals, which is especially appealing in this economy. About one-third of those responding to the Forrester survey said they believe they can get a better deal on merchandise online. Even with declining gas prices, time-pressed consumers often find it easier and cheaper to shop on websites, thanks to free shipping or offers such as Gap's flat rate of $7 to ship anything you buy from any of their brands.
Mollyne Honor did all of her holiday shopping online last year and plans to do the same this season. She got hooked on the Lands' End and L.L. Bean websites years before the chains had stores near her home in Baltimore, but she still shops online. Retailers' websites, she notes, often have a better selection than their stores, and shopping online is a more pleasant experience: "I work full time and do not want to spend my time off trying to find a parking spot and go to a store."
Some gains in online sales are simply "channel shifts," that is, people moving from shopping at brick-and-mortar stores to the same retailers' websites. Forrester predicts this will represent about 8% of growth, but says the other 4% will be people shopping online for the first time.
Forrester research director Patti Freeman Evans says stores "have not suffered in any way" from the online growth. On the contrary, she says online research drives people to stores and creates informed shoppers. "Online gives retailers the chance to reach customers who are hard to reach in their offline arena," Evans says. "Gap is reaching a lot of the marketplace, but there are still people who can't get to the store — or prefer not to."
It also gives them a chance to get in the game when people are comparison shopping. "In some respects, online is a defensive element of their business," says Silverman. "If you're not there, you're going to lose that sale."
Or at least, you won't be competing for it. Kohl's CEO Kevin Mansell says he thinks of his online customers as in "three buckets": customers who already shop both in stores and online; those who research online and shop in stores; and those who "aren't a brand lover." "That's the one we're really focused on and trying to convert," he says.
About 1.5% of Kohl's sales come from its website. Competitor J.C. Penney does almost 8% of its business on the Net.
With evolving Web expertise and the ebb and flow in site visitors, shopping online hasn't always been easy. There are the famous crashes of sites, including Amazon and Wal-Mart during recent holiday seasons, and more contained crises, such as Macy's outage last holiday season.
In this do-or-possibly-die holiday season, there's little room for error. Poepsel says there can be hundreds of combinations of computer-operating systems, browsers and monitor resolutions used by consumers. Retailers have to make sure all content is visible to visitors and all functions (such as the checkout button) work no matter what combination is in use. He predicts there will be "several high-profile examples of plumbing problems" this year despite attention being paid to the issue.
But it doesn't have to be an outage to be a problem. Many shoppers, particularly younger ones, move on when sites are too slow. About 30% of shoppers, he says, get impatient if they have to wait longer than three seconds.
"If you click on something and can't buy it, you're obviously very frustrated," says Poepsel. "Retailers want to capture all sales. Everything has to work."
Gap's online rebound
After Toby Lenk joined Gap as president of its online unit in 2003, he started from scratch rebuilding Gap's site to increase the company's online clout.
In response to customer demand, Gap in May added what it calls "Universality" to its site, allowing consumers to shop from Gap, Banana Republic, Old Navy and its online shoe and handbag store Piperlime in one place. That has increased cross-shopping among brands and has led to more people trading up, not down, despite some saying the move was a risk. A key change for the holidays: "quick links," which lets shoppers move from, say, GapKids girls' jeans to those sold by Old Navy with one click rather than the four it used to take.
Gap is also upping the ante in entertainment, with celebrities singing remixed Christmas carols. Included: Selma Blair singing Baby, It's Cold Outside, and the Dixie Chicks doing Deck the Halls. Media-savvy consumers can even remix Jingle Bells using a version supplied by Gap and any combination of celebrities featured on the site to send as a personalized online greeting card.
Gap's multimedia plan is an increasingly popular one. About 43% of retailers in Shop.org's study said they were adding video to sites this year. The website for women's apparel retailer Anthropologie allows visitors to upload photos on the Flickr feature without leaving the site. That, Rollins says, lets shoppers "influence the trend" and gives the site a feeling of community.
Along with community-building, entertainment encourages people to stick around — something increasingly necessary as retailers speed checkout and improve functionality. Site "stickiness" increases the chances for impulse buys, just as entertainment and in-store events do. Lenk says many of its site visitors linger longer on the non-shopping parts of Gap's sites than they do in the e-commerce portion, but he's hardly worried.
"There is a risk your community features can take away from basic e-commerce activities, but it's not a grave risk," says Rollins, whose firm's clients include Victoria's Secret and Lord & Taylor. "It's strengthening the relationship with your consumer."
The Internet's attractions
Retailers have been working all year to encourage people to stay on their sites longer, buy more and maybe even get the urge to jump in the car to hit one of their stores during the holiday season.
Some of what you'll see online:
•Shipping deals. High fuel prices have increased what retailers have to pay for shipping but haven't prompted them to abandon free shipping. This year, 78% of retailers told Shop.org they plan to offer free shipping with conditions, such as a minimum purchase, at some point during the holiday season. That's about the same share as last year. More than 20%, however, plan to require a higher minimum purchase for free shipping, and about 10% are backing off free shipping without conditions.
•Bolder promotions. About a third of retailers say they've added and improved clearance sale pages. Kohl's plans eight advertising "takeovers" of the home pages of sites including AOL, MSN and Yahoo. Other retailers, depending on their target, will go big or understated to attract online shoppers. You can't use big red "75% off!" banners if you're a luxury retailer, says Rollins.
Retailers including Wal-Mart have even conducted eye-tracking studies to see what promotions and merchandising get people's attention and cause them to click. "It's amazing how scientific this has gotten," says Rollins.
•Product reviews. About 33% of retailers polled by Shop.org said they have added customer reviews to their sites since last year. While consumers are increasingly using and contributing to them, however, you won't find them on many single-brand specialty store sites. Gap is trying reviews this season, but Lenk notes it's only for Piperlime, which sells many non-Gap brands.
Along with all the brand building and marketing-speak, there's a simple reason retailers want to grow online businesses: They get a much better return on the money they invest in their sites than they would in their stores.
"We don't have a big fleet of bricks and mortar as we grow this revenue base," Lenk told investors and analysts last month. "All retailers have this advantage. There're no landlords. We are the landlord."