Shopping.com Goes Out on a Limb

As online retailers continue to battle by selling items at or below cost, and by offering free shipping, Shopping.com has again raised the stakes by announcing today the Internet’s first 125 percent satisfaction guarantee.

This, of course, means that Shopping.com, a division of AltaVista, stands to lose a significant amount on transactions if customers aren’t happy. Shopping.com will now offer refunds plus a gift certificate good for an additional 25 percent of the original purchase price to customers who are unsatisfied for any reason within 30 days of a purchase.

There are some limitations. Consumers can only use the 125 percent guarantee three times each year, and only for purchases up to $100.00 (US$).

Shrinking Margins

This new policy comes after competitors like Cyberian Outpost (Nasdaq: COOL) and OnSale (Nasdaq: ONSL) kicked off free shipping offers last month. Shopping.com, which carries more than one million products, still charges for shipping, but the online store claims it actually sells some items below cost each day.

While promotional offers such as the 125 percent guarantee, and free shipping, should bolster consumers’ interest, they also cut into profit margins for online retailers. These issues have become a major concern amongst analysts and investors.

Shopping.com, however, may be able to outlast some of its competitors. Recent developments, such as becoming a division of AltaVista on March 10th — and now being promoted on AltaVista’s search pages, should give this online retailer a leg up on the competition.

Shopping.com’s wide range of product offerings are another advantage the company has over many of its rivals. The store sells products in seven major areas: computers and office products; books, music and movies; home electronics; toy and baby products; home; sports and fitness; and gifts. In comparison, many of Shopping.com’s competitors focus primarily on computer and technology-related products.

Stock Impact

AltaVista is wholly owned by Compaq (Nasdaq: CPQ). Shares of Compaq were up 3/8 to 23-1/16 in early trading today as the company tries to move forward from the earnings nightmare that recently led to a major shakeup and the departure of CEO Eckhard Pfeiffer.

Compaq has struggled to develop an e-commerce presence, even going so far as to stop shipping its computers to online-only retailers, like Shopping.com, in order to avoid channel conflict. However, the company has recently changed its strategy, and is supplying certain online-only retailers with its products once again.

Looking ahead, AltaVista and Shopping.com may be crucial to Compaq’s future. An eventual spinoff of AltaVista could attract investors to Compaq stock.

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