June 1, 2007, 12:00 AM

The Top 500 Guide

(Page 3 of 4)

But for many Top 500 merchant categories in 2006, overall growth was more in line with or below the industry average. Books/CDs/DVDs grew by 25% in 2006 to $3.1 billion led by Netflix with revenue of $996.7 million, while computers/electronics grew by only 12% to $19.8 billion.

For the first time Circuit City generated more than $1 billion in sales through CircuitCity.com. But a number of electronics merchants, including CompSource Inc. (No. 392), Comp-U-Plus (No. 147), eCost.com Inc. (No. 111), eXtreme PC Gear.com (No. 489), Gateway Inc. (No. 54) and Headsets.com Inc. (No. 452), posted lower sales than the year before and -accelerated a shift from selling only gear to -adding services such as PC repairs and computer networking. Among all Top 500 retailers, eCost posted the largest decrease as 2006 web sales dropped by 41.5% to $101.3 million from $173.1 million in 2005.

Going up

Other Top 500 category sales in 2006 include: health/beauty, up 27% to $2.27 billion from $1.75 billion; jewelry, up 26% to $772.4 million from $615.1 million; mass merchants, up 22% to $22.4 billion from $18.3 billion; office supplies, up 19% to $12.3 billion from $10.3 billion; food/drug up 13% to $2.13 billion from $1.87 billion and flowers/gifts, up 1% to $1.21 billion from $1.2 billion.

Though there is moderation in some online categories, there also is still ample room for growth for individual web retailers, particularly smaller niche-oriented web merchants. Over time in other industries, a handful of large players such as General Motors Corp. and Ford Motor Co. in the automotive market and McDonald’s Corp., Burger King and Wendy’s International Inc. in the fast food business, have moved to consolidate their share of the market and forced smaller local and regional competitors to merge or go out of business altogether.

The group with the potential to dominate web retailing-chain stores-often still views the Internet as a minor sales channel or as a venue best used to support their bricks-and-mortar operations

But chain retailers also make up only 20% of the 50 fastest-growing merchants in the Top 500 Guide. In contrast, virtual merchants make up 70% of the list followed by catalogers at 4% and consumer brand manufacturers with 6%, respectively.

Some web retailers find their niche only after extensive market research and even by trial and error. But other smaller Top 500 retailers are growing and running established e-commerce businesses by taking their experience of running stores and applying that knowledge online.

Onlineshoes.com (No. 129) is typical of the smaller web-only merchants using the Internet to find a niche and build a lasting brand. Onlineshoes.com has been selling on the web for more than a decade and in 2006 grew its web sales by 64% to an Internet Retailer estimated $80.2 million. The company, owned and operated by Dan Gerler, a second generation shoe retailer, has been profitable since 2000.

The site also expects web traffic to exceed 28 million visits in 2007, an increase of almost 65% over 2005 traffic of 17 million visits. Onlineshoes.com is able to compete against other rivals such as Zappos, Shoes.com (No. 155) and Gap, which recently launched shoe site PiperLime.com, because the company knows its space and its customers.

Through the Gerler family roots as a Seattle shoe retailer with five stores, Onlineshoes has extensive manufacturer contacts that enable the web site to offer 33,000 styles and 200 premium brands. Onlineshoes.com also backs up its customer service with a 110% price guarantee and offers shoppers unique merchandising programs such as Shoephoria, a shoe-of-the-month program that sends members a new style of shoe each month along with discounts and extended payment plans.

“The Internet gives us the reach we could never have as a conventional retailer and the ability to compete against anyone,” Gerler says.

The extensive data in the Top 500 Guide shows that that is as true now as it was 10 years when the Internet arose as a merchandising vehicle.

mark@verticalwebmedia.com

The Top 500:
Key operating statistics

Industry concentration

The concentration of the e-retailing industry mirrors that of all retailing. The Top 500 e-retailers account for 61% of all online sales, but the top 100 dominate. The top 100 control 53% of retail web sales. By comparison the top 100 store-based retailers control more than 60% of all retail sales in the U.S., not including automobile and restaurant sales.

Web site traffic

In 2006 the Top 500 retail web sites received 1.68 billion average monthly visits. There are 147 million Internet users in the U.S., who visited an average of 5.3 retail sites in 2006.

Performance averages

The Top 500 retail sites recorded an estimated 632.5 million separate sales in 2006 at an average ticket of $132. Sales conversions based on monthly visits vary widely, ranging from 0.05% to 22.5% for chain retailers, 0.33% to 12% for catalog/call center operators, 0.03% to 22.5% for web-only merchants and 0.33% to 12% for consumer brand manufacturers.

Percentage of web sales

The sales of the top 100 retail web sites in 2006 accounted for 53% of the total corporate sales of the retail chains, catalog companies and manufacturers that operate those sites.

Methodology
Researchers contacted hundreds of retailers over five months. The starting point of data gathering was previous Top 500 rankings, and rankings of retailers’ web traffic from comScore Networks Inc. and Nielsen/Net Ratings Inc. That list was supplemented with retailers that Internet Retailer has covered and by retailers who contacted Internet Retailer for inclusion.

Web sales. Whenever possible, web sales listed in the guide came from the company. If the company did not provide sales figures, Internet Retailer estimated sales based on traffic and an assumed conversion rate and average ticket for that retailer’s category-as well as on analyst interviews-to formulate estimates. Retailers were given multiple opportunities to respond to estimates.

Visits and unique visitors. Official numbers were supplied by many retailers. When a retailer did not reveal figures, researchers used comScore, Nielsen/NetRatings or Internet Retailer estimates. Retailers were given the opportunity to respond to estimates.

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