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Rule Breaking Again, Internet-Style

By Tim Beyers
January 4, 2005

I confess: I'm one of those who stayed away from the mall this past holiday season. It's not that I don't like the mall. I was just too busy. Between work, family obligations, and the occasional need for sleep, I just couldn't manage hopping in the car to spend a few hours battling crowds. And even on the day I did, I brought my Apple (Nasdaq: AAPL) PowerBook with me so I could crank out some copy while waiting for presents to be wrapped.

Bah humbug, you say? Well, I would've agreed with you -- that is, till a few minutes ago, when I discovered that many more like me opted for stay-at-home shopping over the Web. A report released Monday by Goldman Sachs (NYSE: GS), Nielsen/NetRatings (Nasdaq: NTRT), and pollster Harris Interactive shows consumers spent more than $23.2 billion online over the holidays, up $4.7 billion, or 25%, from last year.

None of us should be surprised, though. For example, even though Amazon (Nasdaq: AMZN) blacked out toward the start of the season, it was still expecting record-breaking sales. The retailer didn't disappoint. (This, too, may have also been predicted by a brief poll we posted here.)

Where this gets really interesting is when looking more closely at the numbers. For example, you'd probably expect books, or maybe even DVDs or electronics such as the white-hot iPod, to be the top seller among e-tailers. Not so; it was apparel. Clotheshorses forked over $3.8 billion, well above the $2.5 billion spent on toys and the $2.3 billion spent on gadgets.

That some shoppers have become comfortable enough to forgo formal dressing rooms speaks well for the future of e-tailing. But let's be clear: Online stores still account for only 4% of total retail sales. What's more, there are only 32.5 million broadband Internet connections in the U.S., according to the latest numbers from the Federal Communications Commission (FCC). That means loads of potential growth remain.

It's at the front end of trends where Rule Breaking investing opportunities are made. Sure, Amazon, Motley Fool Rule Breakers pick Overstock.com (Nasdaq: OSTK), and eBay (Nasdaq: EBAY) aren't new ideas. But in the world of online retail, these are equivalent to Macy's and Gimbel's. Plenty of profits are still potentially available to specialty stores, including Rule Breakers pick Blue Nile (Nasdaq: NILE). Who else makes the list? Good question. With Christmas once again a year away, the time to start thinking about that is now.

For related Foolishness:

Have a Rule Breaking stock idea? Share it with your fellow Fools at the Rule Breakers New Stock Ideas discussion board. Though a subscription is required to participate, a free, 30-day trial is yours for the asking.

Fool contributor Tim Beyers is an online junkie, yet he still doesn't own shares in any of the companies mentioned in this article. To find out which stocks Tim owns check out his Fool profile, which is here.



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