June 2, 2005, 12:00 AM

The Top 400 Guide

A summary of Internet Retailer’s annual ranking of online retailers

Ten years ago, long before the Internet investment bubble even began to build much less burst and Amazon.com was just beginning to sell online, few, if any, retailers could predict whether business-to-consumer e-commerce would catch on with customers or if the Internet would ever rival stores and catalogs as a serious sales channel.

But today, with more than a third of all households making at least one online purchase each year-a figure Forrester Research Inc. predicts will increase to almost 40% by 2009-Internet retailing has clearly come of age and remains the U.S. retailing industry’s fastest-growing sales channel.

U.S. Internet retail sales totaled $87.5 billion in 2004, up 25% from

$70 billion in 2003 and up 62% from $54 billion in 2002, according to Internet Retailer estimates.

Based on statistics compiled for the Internet Retailer Top 400 Guide, the top 400 retailers in 2004 generated combined web sales of more than $51 billion and accounted for 58.3% of all U.S. Internet sales. In comparison, the top 300 web retailers in 2003 generated sales of $40 billion, 57% of all U.S. Internet sales.

Growing the average ticket

The Top 400 Guide identifies and ranks the 400 largest retail web sites by their 2004 sales and measures other key statistics for each e-commerce site, including monthly visits, monthly unique visits, sales conversion rate and average ticket.

A key metric that demonstrates web retailing’s growing power and merchants’ growing ability to analyze, predict and react to changes in online shopping behavior is the increasing size of average orders. The Top 400 Guide reveals that the average ticket across all merchandising categories tracked in the Guide-Mass Merchants/Department Stores, Computers/Electronics, Office Supplies, Health/Beauty, Books/CDs/DVDs/Music, Housewares/Home Furnishings, Apparel/Accessories, Food/Drug, Flowers/Gifts, Sporting Goods, Specialty/Non-Apparel, Jewelry, Hardware/Home Improvement and Toys/Hobbies-was up about 16% from $92 in 2003 to $107 in 2004.

To present a true picture of average orders, that statistic eliminates sites with unusually high average orders; some furniture sites, for instance, have average orders of $1,000 and computer/electronics sites have average orders of $400+. With those high-value sites factored in, the average order shoots up to $127.

That in itself is a measure of the confidence that consumers have in online shopping. It is also a reflection of retailers’ increasing ability to close the sale. Today sophisticated search engine marketing programs, site search tools and web analytics, along with aggressive pricing and targeted promotions, are helping retailers move their online sales numbers up. In fact, conversion rates generally average in the 2.5% range, but rates that reach 8% are not uncommon and some sites report conversion rates of 18% and higher.

The multi-channel era

In 1995, when Amazon.com, CD Universe, 1800Flowers.com and other pioneers began to demonstrate that the web was an emerging merchandising channel, some traditional chain retailers and catalogers feared that Internet-only merchants could dominate their market niches and force them to cannibalize store and catalog sales to catch up. But in 2005, an era of multi-channel retailing, the Top 400 Guide shows that each segment of the market, which includes retail chains, catalog/call center companies, virtual (web-only) merchants and consumer brand manufacturers, is well represented and experiencing solid growth.

Of the categories tracked in The Top 400 Guide, the com-puters and electronics category and the mass merchants/department store category were tied for the largest share of Top 400 sales, each accounting for 28%. Computers and electronics retailers last year generated $14.3 billion in web sales up from $10.9 billion in the Top 300 published in 2004. They accounted for 27% of the Top 300 sales.

Web sales in the mass merchants/department stores category totaled $14.2 billion compared with category sales of $11.8 billion in last year’s Top 300. Mass merchants/department stores accounted for 29.5% of Top 300 sales.

Other web retailing categories demonstrating solid sales growth are books, CDs, DVDs and music, which increased sales 70% from $999 million in 2003 to $1.7 billion in 2004 and office supplies, which rose 23% from category sales of $5.2 billion in 2003 to $6.4 billion in 2004.

Though there is still room for start-ups and expansion in the web retailing market-No. 388 Ace Hardware grew its web sales more than 400% from just $848,910 in 2003 to $4.4 million in 2004-the largest 100 chain retailers continue to dominate the U.S. web retailing market. In 2004, the top 100 online merchants generated total web sales of $45 billion, or 53% of all online sales. In comparison, the top 100 retailers ranked in 2003 had combined web sales of $36.8 billion, or 52% of the U.S. Internet retailing market.

The $1 billion club

The Guide’s top 100 includes 40 chains, 28 catalog/call center companies, 24 web-only merchants and eight consumer goods manufacturers. Amazon continues as the Internet’s largest retailer with 2004 sales of $6.9 billion, up 31% from $5.2 billion in 2003. Amazon has more than 44 million active customers and offers more than 10 million SKUs.

But Amazon, which on its own accounts for about 8% of all U.S. Internet sales, is joined in the $1 billion club by eight others, including No. 2 Dell Inc. (2004 web sales of $3.2 billion); No. 3 Office Depot Inc. (2004 web sales of $3.1 billion); No. 4 Staples Inc. (2004 web sales of $3 billion) No. 5 HPDirect Inc., a unit of Hewlett-Packard Co. (2004 estimated web sales of $2.7 billion); No. 6 Sears, Roebuck and Co. (2004 estimated web sales of $1.7 billion); No. 7 SonyStyle.com, a unit of Sony Corp. (2004 estimated web sales of $1.6 billion); No. 8 CDW Corp. (2004 web sales of $1.5 billion); and No. 9 Newegg.com (2004 web sales of $1 billion).

The guide’s top 10 merchants reflect the fact that office supplies, consumer electronics and personal computer equipment retailing and direct marketing companies were among the first-and most aggressive-groups of merchants to begin selling online and introduced merchandising tactics that are now standard operating procedure for most web retailers. Dell, for instance, dominates the selling of personal computers online because of its innovative and pioneering strategy of giving customers the option of designing and personalizing their own PCs. But a diverse number of web retailing categories are well represented in The Guide’s top 100, which include 20 apparel/accessories retailers, 17 computer/electronic sites, 16 mass merchants, nine specialty/non-apparel sites, eight food/drug merchants and 30 other merchants in various categories.

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