• by Diane Mermigas , December 5, 2008

A record number of consumers are choosing to shop online this gloomy holiday season because the instant price comparisons, social-network recommendations, free shipping and other interactive tools save time and money. It is a behavioral shift that is permanently changing commerce and advertising in ways that Madison Avenue has yet to fully grasp.

Consumers have been quick to adopt new technologies that afford convenience, choice and value. Their zealous embrace of smartphones, the iPod, GPS devices and the like have obliterated legacy businesses. There is no going back.

While consumers will continue to brick-and-mortar shop (in response to particular value propositions and immediate local needs), the recession is compelling them to discover better, cheaper ways to accomplish the mission online.

Although Black Friday and Saturday brick-and-mortar stores sales rose about 2%, driven by deep discounts, overall November same-store sales were the worst in more than a decade for all retailers save Wal-Mart--which is just behind leader Amazon in online sales. In sharp contrast, Cyber Monday sales (Dec. 1) rose 15% from 2007 to $846 million, the second-highest online spending day recorded, according to comScore.

Robust ecommerce sales the past 10 days (up 12% from a year earlier) could render a best-case 15% rise for all of December and 5.4% growth in ecommerce for the entire fourth quarter, according to Bernstein Research. Based on a consumer survey in late November, JP Morgan said it expects overall holiday spending to decline single digits to low double-digits; commerce will be flat, based on widespread consumer cutbacks. In fact, the National Retail Federation estimates that 89% of shoppers will utilize the Internet for their holiday shopping and 44% will actually buy online.

This is especially important to advertisers because the trend underscores consumers' unqualified acceptance of interactive marketing and e-commerce. The electronic retailing and online advertising regarded as a short-term solution in hard times is becoming a way of life.

In fact, focusing on the slower recession growth rate of Internet ads and sales misses the point: Some aspects of ecommerce and Internet advertising are actually overriding old-line competition in this depressed market; it would do equally well or better in more favorable times. The legacy baggage of traditional retailers' inventory constraints, real estate, personnel and store closings were never more obvious or problematic. The Internet adoption and learning curve that characterized the 2002-2003 recession has given way to mainstream interactivity, which appeals to consumers and retailers.

Although online advertising and ecommerce still have single-digit penetration rates, difficult economic times have underscored just how valuable and innate a resource the Internet is. "Some consumers would sooner cancel their cable/satellite TV than their Internet access, given that they can access so much free content online through the Hulu, YouTube and the broadcast networks' online sites. The Internet is only becoming more important in the shopping process," observes Barclays Capital analyst Douglas Anmuth, who has upped his Internet sector rating to 1-Positive and upgraded Amazon and online jeweler Blue Nile.

In a report out Thursday, Anmuth is clear: Retailers and advertisers that too often dismiss wireless mobile and online video as nascent tech will miss a potentially lucrative ecommerce and online advertising future. The steady flow of better devices, faster networks, improved browsers lower price points and broader distribution will only intensify consumer interactivity in better times, he said.

Want proof? Look at young consumers. More than 40% of consumers between the ages of 18 and 41 expect to do nearly half their holiday shopping online (including classified sites)--compared with 27% of consumers ages 42-plus doing 20% or less of their holiday shopping online, JP Morgan says. Simply put, younger consumers who are accustomed to buying online know they can find what they want closer to Christmas at the best price.

If Amazon is on track to exceed the low end of its fourth-quarter guidance, as Bernstein suggests, it is because founding chairman Jeff Bezos delivers the relevant and reliable ecommerce experience. Amazon has spread the wealth through extensive partnerships with retailers and advertisers that benefit from a precision model that integrates social networking, personal preferences and flawless ecommerce execution. Anmuth contends that the world's largest online retailer (generating nearly $19 billion in sales last year) "has set a difficult-to-match standard in selection, pricing, product information and shipping costs, which have helped to raise the expectations of the average online shopper and have pressured the economics of retailers."

In fact, Amazon's self-sustaining consumer-centric ecommerce model should be heeded and emulated by others. Pitching a product or service isn't enough--even if it is to highly targeted connected consumers. Retailers are also advertisers; they must embrace interactivity to achieve their fundamental objective: the consumer esale. Advertisers' aggressive adoption of new online marketing and ecommerce business models could prove an ironic and valuable byproduct of challenging times.