June 3, 2004, 12:00 AM

In Full Swing

Internet Retailer presents a preview of its ranking of the Top 300 online retailers, with analysis of market trends

The Top 300 retail web sites accounted for 57% of the $70 billion worth of merchandise that was sold online in the U.S. last year, according to a major new research study published this month by Internet Retailer. The study, the first of its kind, is published in a 152-page glossy directory entitled the Top 300 Guide, which ranks the 300 largest retail web sites by their 2003 Internet sales volume and contains many details of their operation, including annual growth, web site traffic, average sales ticket, conversion rate, number of SKUs on the site, vendors, management, corporate ownership and contact data.

The study, the first of its kind, is published in a 152-page glossy directory entitled the Top 300 Guide, which ranks the 300 largest retail web sites by their 2003 Internet sales volume and contains many details of their operation, including annual growth, web site traffic, average sales ticket, conversion rate, number of SKUs on the site, vendors, management, corporate ownership and contact data.

The Top 300 Guide, the result of six months of detailed journalistic research by Internet Retailer, contains a profile on each of the web sites that make up the Top 300 ranking and the data on each illustrate how remarkably fast the e-retailing industry has matured, becoming a significant, increasingly profitable and highly efficient merchandising channel in the U.S. retailing industry. The Guide’s data relating to the performance of the online channel are as impressive as the total web sales figure it reveals. The Top 300 web merchants last year recorded an estimated 11.4 billion visits to their sites. Of those, an estimated 435 million led to an online sale, a conversion rate of 3.8%, well above the 2% rate that only a couple of years ago was considered standard. The Top 300 web merchants also reported an impressive average sales ticket for 2003-$92. Both measurements reflect operating gains web retailers have achieved thanks to recent investments they have made in such web-based technologies as advanced site search, web analytics, search engine marketing, personalization software and content management systems.

A microcosm

In short, the Top 300 study shows that web retailing is fast becoming a microcosm of the overall retailing industry. The types of products sold by the Top 300 web merchants are as varied as those sold in stores, and the proportion of web sales represented by different product categories is far closer to matching the offline retailing environment than it was in the late 1990s, when e-retailing was mostly limited to the marketing of books, CDs and computer gear.

As is the case with offline retailing, general mass merchants now comprise the largest category on the web, accounting for 29% of sales generated by the Top 300 sites. Sales in this group are dominated by Amazon.com Inc., which is the overall leader in the Top 300-accounting for a stunning $5.3 billion in sales, or 7.5% of all sales on the web. As a clear measure of Amazon’s dominance, the second-largest retail site on the Internet generates $2.8 billion in annual sales, slightly more than half of Amazon’s volume. That site belongs to Dell Inc., whose web site allows visitors to design the PC they purchase online to meet their particular needs.

Dell has the top site in the second-largest retail category on the web-consumer electronics. Reflecting the ease with which commodity electronic goods can be sold over the Internet, computer and other electronic sites account for 27% of total sales generated by the Top 300 retail sites. And despite the fact that just four office supply companies made it into the Top 300 retail web sites, they account for a stunning 13% of total web sales of the group and comprise the third largest merchandise category on the Internet, according to the Top 300 Guide. Indeed, as a measure of how well-suited office supplies are on the web, the two largest office supply chains-Office Depot Inc. and Staples Inc.-have the third and fifth largest retail web sites respectively. By comparison, these two merchants rank 25th and 26th among offline retail chains, except that their respective positions in total corporate sales are reversed.

The other product category standout among the Top 300 is specialty apparel, the one market that many retailers once believed would not convert well from the offline to the online channel, simply because web shoppers could neither feel the garment nor try it on before purchasing it online. Yet, 70 of the Top 300 retail web sites are operated by specialty apparel merchants and manufacturers, and together they account for $3.3 billion of sales, or 9% of the total sales for the leading retail sites, a figure that excludes apparel sold online by mass merchants or sporting goods sites. The web sites of Gap Inc. (ranked #16) and Sears-owned Lands End (ranked #17) are the leading specialty apparel sites, each controlling 13% of the apparel web site category.

Perhaps in the most telling indication of the web’s growing breadth of merchandise, sites that specialize in books, CDs and videos account for only 2% of sales of the Top 300 web sites in the U.S., although that percentage would climb to 7% if Amazon’s $4 billion in book, CD and video sales were counted in this category instead of the mass merchandiser group.

Greater diversity

In one respect-the nature of the companies that own the web stores which compete in the online channel-the Internet retailing industry is even more diverse than the ownership make-up of the overall U.S. retailing market. While retail chains and stores, for example, account for the great bulk of retail merchandise sold in the U.S., the web sites owned by retail chains account for only 41% of online sales generated by the Top 300 retail sites, a clear indication that retail stores have a long way to go before they duplicate online the type of dominance their brands enjoy offline. The Top 300 Guide also reveals that catalogers, long considered natural players in the e-retailing field, have not been able to use their mastery of direct retailing and their early adoption of online merchandising to significantly expand their overall share of the retail market. The cataloger sites ranked in the Guide account for just under 15% of the Top 300’s total sales, only slightly above the catalog industry’s overall share of offline retail sales.

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