May 31, 2011, 4:59 PM

What the 2011 Top 500 reveals

(Page 2 of 7)

The fastest-growing merchants among consumer brand manufacturers and catalogers developed a better user experience and added more merchandise and customer service tools to build up their sales. Outdoor apparel manufacturer Columbia Sportswear Co. (No. 314) grew e-commerce revenue year over year 117.2% to $31.5 million from $14.5 million by launching a web store in early 2009 that appealed to shoppers with advanced features such as product zoom and videos, guided navigation, and product ratings and reviews. Among catalog/call center companies, the fastest-growing direct marketer, Allied Electronics (No. 131), beefed up its e-commerce site with more products and now has an online inventory of about 120,000. A deeper inventory and better search marketing are main reasons web sales grew 92.6% to $135 million in 2010 from $70.1 million in 2009, Allied says.

LuluLemon Athletica Inc. grew the fastest among chain retailers, increasing sales 213.1% to $57.3 million in 2010.

The Internet retailing market grew in 2010 because North America's biggest web merchants keep doing a better job of making it easier for shoppers to begin—and end—their transactions online, says Freedman of The E-tailing Group. "Between the convenience of shopping the web, the enhanced ability for consumers to price shop online and then use new technology like mobile commerce to buy what they want and when they want, e-commerce is the channel that in retailing will continue to flourish," she says.

Stick with a niche

Diversity and risk-taking fuel growth for the Top 500 web-only merchants
The Top 500 web-only merchant segment remains dominated by a single company: Amazon.com Inc. But even without Amazon (No. 1), a number of other web-only merchants also managed to grow faster than the U.S. e-commerce market and the Top 500 as a whole.

Instead of trying to outwrestle Amazon.com, which grew its total sales 39.5% to $34.2 billion in 2010 from $24.5 billion in 2009, other web-only retailers found success by concentrating on their niches, making acquisitions or diversifying. Overall, with Amazon included, Top 500 web-only merchants grew 30.6% to about $56.89 billion last year from $43.55 billion in 2009. But even without Amazon, sales for the remaining web-only merchants grew year over year 19.5% to $22.7 billion from $19.0 billion. A total of 68 retailers among 205 Top 500 web-only merchants also met or exceeded the growth rate of 18% for all Top 500 retailers, and 85 grew as fast or faster than the increase in U.S. e-commerce sales of 14.8%.

"If they got through the recession and put up good growth last year, web-only merchants did so by running a very smart and focused operation," says Bernardine Wu, CEO of e-commerce consulting firm FitForCommerce. "They picked the best opportunity to expand and then made the most of it."

Beyond the Rack (No. 191) was the fastest-growing Top 500 web-only merchant. Rather than try to muscle its way into the crowded U.S. e-commerce market, which already included such private-event sale sites as Gilt Groupe (No. 49), HauteLook (No. 156) and RueLaLa.com (No. 82), Beyond the Rack launched one of the first private-sale sites in Canada. In just over two years Beyond the Rack has grown to more than 2.5 million member and sales in 2010 grew 1,150% to C$73.8 million (US$76.9 million) from C$5.9 million (US$6.2 million) in 2009.

Since launching in early 2009, Beyond the Rack has redesigned its web site and added new features such as event category tabs, drop-down menus, and category-specific calendar pages to help customers quickly find what they're looking for. Beyond the Rack also upped the number of daily sales events from 12 to 18 and added more detailed content such as a more robust blog with exclusive fashion tips and trends from a style editor. "As our growth continues to accelerate, we are providing our customers with the most pleasurable shopping experience we can give them," says CEO Yona Shtern. "Many of the improvements came directly from customer feedback."

Beyond the Rack, which has raised more than $12 million in funding from investment bankers such as Highland Capital Partners LLC and BDC Venture Capital Inc., is concentrating on Canadian web shoppers, but providing a wider selection of merchandise than many U.S. flash-sale sites. Rather than limit itself to just a few categories such as apparel and accessories, Beyond the Rack offers a diverse selection of merchandise that includes men's and women's apparel and accessories, children's clothing and toys, beauty, housewares, and home dŽcor, says Shtern. "We attribute our growth to the confidence and satisfaction of our members," says Shtern.

As a young start-up, Beyond The Rack's success is based on organic growth. But other web-only retailers grew their share in a specific niche by acquisition. A prime example is the automotive and accessories segment, which was the fastest-growing merchandising category in the 2011 Top 500 Guide with sales that increased year over year 44.6% to $682.4 million from $472.0 million. By virtue of a substantial acquisition, one web-only merchant—U.S. Auto Parts Network (No. 59)—now accounts for about 48.9% of sales in the category.

In 2010, U.S. Auto Parts Network grew sales 89.2% to $333.5 million from $176.3 million, in part by acquiring Whitney Automotive in a deal valued at $38 million in August 2010. Whitney, which owned JCWhitney.com, StylinTrucks.com, CarParts.com and AllBikeSuperShop.com, added about $71.2 million in 2010 revenue. But even without the incremental Whitney revenue, U.S. Auto Parts Network still managed to grow sales 48.8% to $262.3 million in 2010 from $176.3 million in 2009.

U.S. Auto Parts purchased Whitney to gain a bigger toehold in the do-it-yourself vehicle repair market. By acquiring Whitney, U.S. Auto Parts added more than 6 million automotive parts and accessories to its online inventory, and an Illinois distribution center. "The acquisition allows U.S. Auto Parts to complete a three-distribution center network, and increase our distribution footprint to allow for 95% of customers in the U.S. to receive parts within two days of purchase," says CEO Shane Evangelist. "The combination of Whitney's established brands and focus on the customer experience, coupled with U.S. Auto Parts' capacity to compete online, creates a huge opportunity for growth."

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