The Search for the Perfect Gift Grows at Small Online Stores – Search engine management can help small businesses do big business

When someone types "Christmas light sets" into the Web search engine Google, the second listing, after a government recall notice, is the site for Aubuchon Hardware, a family-run chain of New England hardware stores. As a result, Aubuchon is now selling more light sets in California than in Massachusetts, its home state.

By SAUL HANSELL NY Times

The best-selling item last week on Amazon.com’s new specialty meat department was the "élevages magret duck breast" from Fossil Farms, a wild game farm in Lakeville, Pa. The duck beat out the top sirloin offered on the site by Omaha Steaks, the giant mail-order butcher.

Online shopping is expected to grow faster this holiday season than it has since the peak of the Internet frenzy in 2000, even as some analysts predict moderate growth in retail sales over all. And much of the growth is being driven by search engines like Google and other sites like Amazon and the online marketplace eBay, which are sending shoppers to tens of thousands of online stores, many of them small, independent operations.

Shoppers understand that they cannot feel the softness of a cashmere sweater on a Web site, but the Internet offers speed, low prices, detailed product information and a way to avoid the holiday crush at the malls.

Improved search quality, pioneered by Google, has made search engines an easy and efficient way for people to find things online — and for advertisers to find customers. At the same time, eBay, a haven for small businesses, has become the fastest-growing major shopping site, and much of Amazon’s growth has come from serving as a middleman for independent retailers.

"As a small business, I didn’t have the funds to put into advertising and catalogs," said Lance Applebaum, Fossil’s chief executive. "Amazon lets us show off on a worldwide basis."

Since the company’s duck, ostrich and buffalo products were included in Amazon’s gourmet food section, which opened last month, Fossil’s sales to consumers have increased tenfold. Now the company is rushing to develop special gift boxes, hoping Amazon customers will buy its foie gras and ostrich steaks as holiday gifts.

Online sales were the bright spot for retailing over the Thanksgiving weekend. Visa said its online sales, including travel, increased 47 percent in the week ended Sunday, compared with the week last year. Traditional retailers had only a 9 percent increase in spending on Visa cards. Indeed, for the week, online spending represented 7.4 percent of the $19.7 billion charged to Visa cards, up from 5.7 percent in the week last year.

For the entire holiday season, the National Retail Federation is predicting an overall increase in sales of 5.7 percent, compared with 2.2 percent last year. Online sales in the fourth quarter, meanwhile, are expected to rise by 29 percent this year over last year, according to eMarketer, a firm that compiles Internet research, compared with a 28 percent increase last year.

This year, about 81 million people — up from 73 million last year — are expected to make online purchases, according to eMarketer. And a survey from Forrester Research suggests that women will outnumber men among online shoppers for the first time.

"When we started, 70 percent of our customers were highly educated males," said Diego Piacentini, the senior vice president for retail and marketing at Amazon.com. "Now our customers are much more mainstream."

Online merchants, meanwhile, are finally recovering from the dot-com bubble, when millions of venture capital dollars were poured into the Internet equivalents of lemonade stands. When those companies collapsed one by one, online shopping became concentrated at Amazon.com — the one truly successful pure Internet store — and the online outposts of the big store chains like Wal-Mart and Best Buy.

At the same time, however, thousands of smaller businesses were experimenting with selling online. With no venture capital to blow through, they typically were cautious, often starting with a few auctions on eBay or setting up a small online store through Yahoo. Then many of them began tapping into a powerful marketing tool and the fastest growing part of the Internet — search engines, especially Google.

"Search engines are great because we have so many different products to offer," said William E. Aubuchon IV, who runs the Web site at Aubuchon Hardware, his family’s chain of 140 New England hardware stores.

Aubuchon uses two strategies to have its name appear when people search for any of the 40,000 products it carries. With the help of iProspect, a firm that helps companies improve their visibility in search engines, it has tweaked the wording on its Web pages to make them show up closer to the top of search engine results. And it buys text advertisements, typically called sponsored listings, that appear above and to the side of the actual search engine results. Now more than half of Aubuchon’s online business comes from search engines.

"We’re not a destination site, like Home Depot, but search engines help people find us when they are looking for something specific like Christmas light sets," Mr. Aubuchon said. "Instead of us chasing customers around, on search engines the customers chase us around." Helped by search marketing, Aubuchon will double its online sales this year, he said.

Search marketing does have its downside, he added. Aubuchon found it a waste of time to tie its ads to the word "hammer" because so many of the searches were for M. C. Hammer, the rapper, rather than for the hand tool.

The search engines are increasingly important to retailers because a growing number of people appear to be using them to find all sorts of things online, including what to buy.

"This year, the way people use the Web is different," said Ken Seiff, chief executive of Bluefly.com, a discount clothing retail site that is increasing its search advertising. "When someone wants to know something, the first thing they think of is Google or Yahoo or MSN. It could be who is this person, what is that country, or where do I find a black cashmere sweater."

Big retailers also started to show more interest in search engines last year. After measuring the results, many are shifting advertising dollars from portals like America Online and Microsoft’s MSN to search engine advertising sold by Google and Overture Services, which is owned by Yahoo.

"This retail season for Google is the first time we have seen very heavy spending from the large retailers," said Tim Armstrong, Google’s vice president for advertising sales. The research firm Comscore Networks has found that 7 percent of the sales of larger online merchants now comes directly from search engines.

The national retail chains still have to bid for placement on each search term against much smaller companies. On Overture, the company that bids the highest gets its ad listed first; on Google, the system is similar but more complex. The advertisers pay only when someone clicks on their advertisement. But the big companies say they nonetheless get more than their fair share of traffic from the search sites.

"It’s good to have a 50-year-old brand name that has a lot of recognition," said Cathy McCarthy, director of online marketing at Circuit City Stores. "People will pick your name, even if you are not on the top of the results, but you have to be there."

From the start, eBay has been dominated by small businesses and part-time entrepreneurs because it initially focused on auctions for collectibles and garage sale junk. Indeed, the holiday shopping season was typically slower for eBay than January, when people would auction off unwanted Christmas gifts.

But in recent years, the majority of the items sold on eBay have been standard consumer goods, and now half of those are new rather than used goods. The site has also created sale formats that allow immediate purchases at fixed prices, for those who would rather not wait out a weeklong auction.

This season, eBay is promoting these changes in an all-out appeal for holiday gift buyers, with a marketing campaign promoting the fixed-price sale of new products, especially electronics. For example, it ran a series of newspaper advertisements featuring new electronic items from a selection of its sellers, including Steve Weinberg, who uses eBay to sell Palm organizers from his home in El Dorado Hills, Calif.

"We’re not selling last year’s junk with broken knobs," Mr. Weinberg said. "We are selling new products, with manufacturers’ warranties. You can click, pay and we’ll ship it in hours."

Mr. Weinberg’s experience is like that of thousands of eBay sellers. At first he sold some things he had at home that he no longer wanted. Then he started to buy electronic products at stores when they were on sale and resold them at a profit online. By last year, he had found wholesale sources for consumer electronics and quit his day job as a teleconference system salesman to devote himself to selling goods on eBay full time.

And like other eBay merchants, he has found customers who like to buy from smaller merchants within the umbrella of a site like eBay, which offers some protections like limited insurance against fraud.

"I can sell the same brand-new product you can buy at Circuit City at the same price," he said. "And I truly believe I offer better and faster service than any of the big stores."

To be sure, an increasing number of big retailers and manufacturers are also setting up shop on eBay, just as they have started to sell through Google. But for them, it is unfamiliar territory. Neither Google nor eBay give discounts or other special treatment to their largest customers, advantages that big corporations have come to expect.

For big companies, managing hundreds of auctions and bidding on ads for thousands of search keywords can be labor intensive. Still, as they learn more about how to use these new marketing channels, they may eat into the growth that the smaller businesses have enjoyed this year.

"Ultimately the Wal-Marts will take over online retail, just as they have in the physical world," said Carrie A. Johnson, a retailing analyst with Forrester Research. "The small guys are scrappy and savvy. They were the first ones to sell on eBay and on Google. But the big retailers will steal all the smart tactics from the smaller ones. They may not be better; they have deeper pockets."

Copyright 2003 The New York Times Company

http://www.nytimes.com/2003/12/03/technology/03ECOM.html