Online Retail Off to Respectable Start

Analysts feel that online retail specialist Amazon is nonetheless well positioned to exploit the current economic malaise.

"[Amazon's] online-only model provides meaningful competitive advantage," said Heath Terry, an analyst at Friedman Billings Ramsey, in a research note. "The company is able to centralize operations and rely on a more efficient distribution network without the investment in physical stores."

Terry reinitiated coverage of Amazon with a market perform rating and a $45 price target.

Confronted with an increasingly uncertain economic climate, more consumers are clearly choosing the Internet for comparison shopping and actual purchases.

A recent survey of 766 consumers by JPMorgan, for example, revealed that overall holiday spending could be down in the high single-digits to low double-digits in 2008, whereas online spending will be flat year-over-year. Among U.S. online retailers, Amazon is the clear leader, according to the firm, which found that nearly 50% of respondents plan to use the Seattle-based company.

Amazon's reach is 39% higher than its nearest competitor, eBay, explained JPMorgan analyst Imran Khan. "Amazon continues to pull in very high percentages of users earning more than $100,000, with 59% of shoppers saying they had shopped there," he wrote.

Online retailers such as Amazon and eBay could, however, face stiff competition from the Internet-based versions of traditional brick-and-mortar businesses over the coming months. JPMorgan's survey found that the number of shoppers planning to use Walmart.com and Target.com grew by a double-digit percentage from last year. Sears.com also enjoyed a "statistically significant" year-over-year increase, according to Khan.