Who Says E-Commerce Is Dead? NEW YORK - Industry experts expect a grim holiday season for many traditional retailers but Mary Brett Whitfield, senior vice president at Retail Forward, a management consultancy specializing in retailing, predicts a 30% growth, to $11 billion, for online retail sales in the fourth quarter. OK, so e-tailing isn't expanding at the 100% clip of last year, but few sane people expected this sector to keep doubling year after year. Yet there's still plenty of room for growth: Online retailing currently amounts to just 1% of total retail sales. "For the handful of Internet retailers who survived this year's shakeout, limited competition could position them for their best holiday season yet," says Tara Weiner, managing director of Deloitte & Touche's Consumer Business Practice. The most widely watched online retailer is Amazon.com (nasdaq: AMZN - news - people ), which generated $3 billion in revenue over the last four quarters but still lost $1 billion. The good news: Amazon's third-quarter losses, excluding unusual items, are down to $170 million versus $241 million a year ago. Amazon now has strategic partnerships with traditional retailers, such as Target (nyse: TGT - news - people ) and Circuit City (nyse: CC - news - people ). "Amazon's market for books and music is nearly mature, so partnerships with brick-and-mortar retailers in other areas will increase its customer base," notes Whitfield. Amazon.com expects to post a modest increase in sales in the fourth quarter, but Safa Rashtchy, senior research analyst at U.S. Bancorp Piper Jaffray, says that Amazon is making healthy gains in international sales and is also developing a nice business selling used books and other hard-to-find items. Rashtchy expects Amazon to achieve quarterly profitability by the end of 2002. "Web retailers that are part of brick-and-mortar stores may enjoy a boost in sales because they share brand-name credibility," explains Weiner of Deloitte & Touche. She notes that categories like music, sporting goods, and toys and games will have a better showing online because consumers have less of a need to see or try on the merchandise. The first of two tables lists pure-play online retailers and their affiliates. Most are not profitable, but their strong brand recognition and rising revenue could help them achieve profitability. The second table lists traditional retailers who have a strong Web presence. Women's apparel retailer and cataloger J. Jill Group (nasdaq: JILL - news - people ) currently operates 51 stores in the U.S. In the third quarter, the firm's online sales have increased to 24% from 15% of direct sales. "Jill's strategic alliances with affiliate marketing have been particularly effective in broadening its customer base," notes U.S. Bancorp Piper Jaffray senior research analyst Jeff Klinefelter. Example: J. Jill markets its products through partnerships with retailers like Martha Stewart online. J. Jill trades at 16 times Klinefilter's 2002 earnings-per-share estimate of $1.25. Analysts reporting to Thomson Financial/IBES expect J. Jill's profit to increase 25% annually over the next three to five years.
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