As Online Shopping Grows So Do Growing Pains

online shopping
Ross D. Franklin/ employee Hugh Johnson Jr. packs up a box at an warehouse earlier this month.

Americans waited until the last minute to buy holiday gifts, but retailers weren't prepared for the spike in sales.

Heavy spending in the final days of the mostly lackluster season sent sales up 3.5 percent between Nov. 1 and Tuesday, according to MasterCard Advisors SpendingPulse, which tracks payments but doesn't give dollar figures.

Online shopping led the uptick, with spending up 10 percent to $38. 91 billion between Nov. 2 and Sunday, research firm ComScore (SCOR) said.

"We always have last-minute Charlies, but this year even people who normally complete shopping earlier completed shopping later," said Marshal Cohen, chief retail analyst at market research firm NPD Group.

The late surge caught companies off guard. UPS (UPS) and FedEx (FDX) failed to deliver some packages by Christmas due to a combination of poor weather and overloaded systems, leaving some unhappy holiday shoppers.

Justin Londagin and his wife ordered their 7-year-old son a jersey of Russell Wilson of the Seattle Seahawks from NFL's website on Dec. 19.
They paid $12.95 extra for two-day shipping to get it to their Augusta, Kan., home before Christmas, but it didn't arrive in time.

"We had to get creative and wrote him a note from Santa to tell him that the jersey fell out of the sleigh and Santa will get it to him as soon as he could," he said. (AMZN) is offering customers with delayed shipments a refund on their shipping charges and $20 toward a future purchase. And other retailers such as Macy's said they are looking into the situation.

The last-minute surge this year solidifies the increasing popularity of online shopping, which accounts for about 10 percent of sales during the last three months of the year. It also underscores the challenges that companies face delivering on the experience, particularly during the holiday shopping season that runs from the beginning of November through December.

Analysts say FedEx and UPS typically work closely with big retailers to get a sense of the volume of packages they'll handle during peak times like the holiday season. Extra flights, trucks and seasonal workers can be added if the projections are large.

But this year, David Vernon, a senior research analyst at Sanford C. Bernstein, said weather played a role. The early December ice storms in Dallas could have hurt operations, he said, and packages can start to accumulate. And that got compounded by a late surge in shipments, he said.

"Clearly, as a group, [they] underestimated the demand for Internet retailing during the holidays," Vernon said.

Another problem was the growing popularity of retailers offering free shipping. Amazon, for one, has a two-day free shipping offer that comes with its $79 annual Prime membership. The company said in the third week of December alone, more than 1 million people signed up for the membership.

"Frankly the right hand wasn't talking to the left," said Forrester analyst Sucharita Mulpuru. "The marketing teams of a lot of web retailers [offering free shipping] were not talking to the operations and supply chain teams."

The resulting delayed shipments could be a problem for shippers. UPS and FedEx didn't quantify how many packages were affected but said they were just a small fraction of total holiday deliveries.

"The central pillar of their business is a perception of reliability with their customers," said Jeremy Robinson-Leon, COO of Group Gordon, a corporate and crisis PR firm. This year's snafus "just really erodes trust among customers."

Still, analysts say people will still shop online. "Consumers tend to have a short memory, especially if you fast forward to another year," said Andrew Lipsman, vice president of industry analysis for comScore.

Indeed, some shoppers are taking the delays in stride. Traci Arbios, who lives in Clovis, Calif., did about 90 percent of her shopping online. Most items included free shipping and everything arrived on time except one package she ordered from a seller on eBay (EBAY) that was sent first class by the U.S. Postal Service on Dec. 12. It still hadn't arrived by Thursday.

"Everything arrived on time except this one item," she said. "It's not going to stop me from shopping online."

-Mae Anderson reported from Atlanta and Scott Mayerowitz reported from New York.

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Order at the last minute, then do not expect it on time. We do have bad weather at times.

December 27 2013 at 5:22 PM Report abuse +2 rate up rate down Reply

I Always said...If you rely on Tech too much..It will bite you in the A$$....Better Learn to but Early& don't rely on the Internet so much.....People who got Punched with the Target scam will tell you the Truth....On a Lighter note,Check out these Stocks...NEU AAMC UTHR ARRS.

December 27 2013 at 11:48 AM Report abuse +1 rate up rate down Reply

From what I can see the Online retailers and some brick and mortar stores will be competing for sales while the staffing needs are just as unstable as ever. What happens after the holiday crunch?

It was bad enough having the Large Pizza companies sending their young drivers racing through the streets trying to make time. Adding these increases in door to door package delivery under the stop watch has resulted in collisons and some fatalities. Some areas are congested with vehicles and pedestrians so it's time to rethink your business models.

December 27 2013 at 10:09 AM Report abuse -2 rate up rate down Reply

When are the brick and mortar stores going to understand. A lot of us like to buy "American" and on line is the only place we can buy. I do not like to pay the sales taxes along with the shipping fees but I will for I want to buy American. Just means I will have less to spend on other items. Where is the tea party on this one. Taxed enough already. I will never join them

December 27 2013 at 9:58 AM Report abuse -3 rate up rate down Reply
1 reply to toosmart4u's comment

First, where did you get the idea that on line goods are made domesticaly, and brick and mortars carry only imports? Totally wrong!!!
Second, why is it fair to burden brick and mortar store with sales taxes, and not saled on the internet? How about a lower rate for everyone???

December 27 2013 at 11:15 AM Report abuse -1 rate up rate down Reply


December 27 2013 at 9:55 AM Report abuse -3 rate up rate down Reply

When you under hire you get what you get!

December 27 2013 at 9:31 AM Report abuse -1 rate up rate down Reply

This is a lesson..Not stores or Delivery fault, next year do it sooner...THAT SIMPLE CASE CLOSED

December 27 2013 at 9:25 AM Report abuse rate up rate down Reply

Didn't shoppers have a similar disappointing experience with online gift shopping just a few years ago???

People just can't learn from past experience, can they?? They sit around and say: "This time, it will be different."

December 27 2013 at 8:14 AM Report abuse +1 rate up rate down Reply
1 reply to Valerie's comment

People just can't learn from past experience, can they?? They sit around and say: "This time, it will be different.

Well Valerie, the prime example of that has been proven in the 2012 elections .

December 27 2013 at 8:27 AM Report abuse -3 rate up rate down Reply
2 replies to Mickylitz's comment

You got that right mily, it unfortunately did not happen, as Valerie says, people just can't learn from past experience....You're obviously one of them.

December 27 2013 at 10:24 AM Report abuse -3 rate up rate down

@ Micky: "Prime example" is right. I couldn't agree more. Younger voters in their 20's voted for BO in overwhelming numbers in 2012, because they think he's "cool". I wonder how they like that "hope and change" now --- as they sit in their parents' home with loads of college debt and no job.

December 27 2013 at 2:15 PM Report abuse rate up rate down

The people who did not receive their packages in time for Christmas for the most part deserved it. Why did they wait to the last minute to shop and ship? I started shopping in September and continued through October and November. I was completely done by December 1. By doing it this way, I was also able to budget a lot better and was assured that the items I wanted were available for purchase. My son also put in his order in for a PS4 as soon as it was offered and was able to get the console the first day available without going crazy. The early bird catches the worm.

December 27 2013 at 6:31 AM Report abuse +1 rate up rate down Reply