May 31, 2006, 12:00 AM

The Top 500 Guide

(Page 2 of 4)

Sporting goods merchants listed in both the Top 400 Guide and Top 500 Guide also posted a good year, growing their combined annual web sales in 2005 24% to $1.2 billion from 2004’s $998 million. Sporting goods was followed by: flowers and gifts, up 20.3% to $1.1 billion; jewelry, up 19.7% to $515.6 million; computers/electronics, up 16.1% to $16.6 billion; specialty/non-apparel, up 12.2% to $1.9 billion; and health and beauty, up 11.3% to $1.7 billion.

The chain gang

As is the case for offline retailing, chain retailers accounted for the biggest portion of total online sales in 2005. As befits their substantial investment in technology, marketing, merchandising, distribution and customer service, retail chains amassed 40.3% ($27.8 billion) of all online sales last year, followed by virtual merchants with 30.2%, consumer brand manufacturers at 15.3% and catalogers at 14.3%.

By comparison, chain retailers had 2004 e-commerce sales of $19.9 billion, 38.9% of all web retail sales, followed by: virtual web merchants, with $13.9 billion (27.2%); consumer brand manufacturers, with $9.6 billion (18.8%); and catalogers, with $7.8 billion (15.2%).

Retail chains are widely represented in the mass merchant category-nine chains are included among the 27 mass merchant sites ranked in the Top 500 Guide. Consolidation in both the online and general retailing markets is creating mass merchant sites with bigger economies of scale-and market share.

Due mostly to its acquisition of Lands’ End in 2002 and its merger with Kmart Corp. in 2005, Sears Holdings Corp. (No. 7), for example, now is the second largest mass merchant on the web, with annual Internet Retailer estimated e-commerce sales of $2.2 billion.

With 2005 e-commerce sales of $8.5 billion, an increase of 22.7% over 2004’s $6.9 billion, Amazon.com (No. 1) is the top retailer in the mass merchant category, with market share of 12.3%. But other major retailers are beginning to close the gap. The Internet retailing market now has 14 companies that generate more than $1 billion in annual web sales, compared with just 10 in 2004.

In addition to Amazon, the other 2005 top 10 sites, all in the billion-dollar club, include: Office Depot Inc. (No. 2), $3.8 billion; Staples Inc. (No. 3), $3.8 billion; Dell Inc. (No. 4), $3.78 billion; HP Home and Home Office Store (No. 5), $2.8 billion; OfficeMax Inc. (No. 6), $2.6 billion; Sears (No. 7), $2.2 billion; CDW Corp. (No. 8), $1.8 billion; SonyStyle.com (No. 9), $1.6 billion; and Newegg.com (No. 10), $1.3 billion. Web sales for Dell, HP, Sears and Sony are Internet Retailer estimates.

Billions and billions

More companies are hitting $1 billion or more in annual online sales by sticking with business-to-consumer e-commerce for the long haul and building online brands-bolstered by multi-channel support-consumers have grown to trust. For instance, J.C. Penney first developed an online channel in 1994 but didn’t achieve more than $1 billion in annual web sales until last year.

But the chain began building an online base long before many of its competitors and was among the first retailers to develop a merchandising strategy aimed at customers who shop online from work with a broadband Internet connection. As a result, JCPenney.com now routinely attracts more than 20 million monthly visits from 7.9 million monthly unique visitors, according to comScore Networks Inc.

Overall the 14 companies with more than $1 billion in annual web sales represent 61.2% of all online sales among the top 100 retailers, which continue to dominate the overall Internet retailing market.

In 2005 the web’s top 100 retailers, which include 37 chain retailers, 25 catalogers, 31 virtual merchants and seven consumer brand manufacturers, racked up combined sales of $59.6 billion-54.5% of all online sales, up slightly from 53% in 2004 and 52.6% in 2003. The top 100 are getting bigger as a direct result of building web stores with broader inventory, faster search, better graphics, deeper content such as consumer product reviews, more rich media applications and more personalization.

Some top 100 companies, though, are growing as a direct result of a merger or acquisition. IAC/InterActiveCorp. (No. 23) grew web sales 105% to an Internet Retailer estimated $621 million in 2005 from $303 million in 2004 as a result of its acquisition of Cornerstone Brands in March 2005. The acquisition gives IAC 12 e-commerce sites: HSN.com, the e-commerce arm of the Home Shopping Network; Improvements.com; Alstos.com; AmericasStore.com; HomeFocusCatalog.com; BallardDesigns.com; Frontgate.com; GarnetHill.com; Smith+Noble.com; TheTerritoryAhead.com; TravelSmith.com; and IsabellaBird.com. Further, IAC/InterActive continues to grow through acquisition. In January the company purchased Shoebuy.com (No. 127) for an undisclosed sum.

Other top 100 companies also are making acquisitions to grow their market share. Federated Department Stores Inc. (No. 29) completed its takeover of May Department Stores Co. in 2005; it is consolidating a dozen diverse web stores into flagship brands Macys.com and Bloomingdales.com. Liberty Media Corp., which owns QVC, acquired Provide Commerce Inc. (No. 56) in early 2006 for $477 million.

While chain retailers had a solid 2005 with an average growth rate of about 38%, other top 100 online retailers in other business segments also enjoyed solid growth. Among web-only merchants, Zappos.com posted the highest growth rate by increasing web sales 101% to $370 million from 2004’s $184 million.

Zappos, which expects to generate online sales of about $600 million in 2006 and sales of $1 billion within five years, was followed by: RealPlayer Music Store (No. 92), up 100% to $97.5 million; MLB Advanced Media (No. 82), with a 67% increase to Internet Retailer estimated sales of $116.2 million; Overstock.com (No. 18), with a 63% year-over-year growth rate to $804 million; Provide Commerce (No. 56), up 37.5% to $177 million; Peapod (No. 45), up 31.2% to $240 million; Newegg (No. 10), up 30% to $1.3 billion; FreshDirect (No. 68), up 25% to $150 million; and Blue Nile (No. 52), up 20.1% to $203.2 million.

Among consumer brand manufacturers, the company posting the biggest annual gain in 2005 web sales was Shoes.com Inc. (No. 192), an e-commerce unit of Brown Shoe Co. In 2005 web sales for Shoes.com reached $34.6 million, an increase of 95.5% from 2004’s $17.7 million. Shoes.com was followed by: Ralph Lauren Media LLC (No. 101), up 70% to $85 million; Apple Computer Co. (No. 15), up 64.7% to $900.8 million; Clinique Laboratories Inc. (No. 319), up 50% to $13.9 million; LEGO Direct Marketing Inc. (No. 136), up 46% to $56.8 million; Coach Inc. (No. 162), up 40% to $46.9 million; The Timberland Co. (No. 275), up 37.9% to $18.6 million; and A|X Armani Exchange (No. 239), up 37.1% to $23.4 million. The web sales for Apple, Clinique, LEGO, Coach, Timberland and Armani are Internet Retailer estimates.

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