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What the 2011 Top 500 reveals
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Manufacturing more web sales
Top 500 brand manufacturers have yet to reach their full e-commerce potential
Their deep product expertise puts consumer brand manufacturers in a strong position to become major online retailers. But as a group, consumer brand manufacturers lag behind other web merchants and aren't living up to their full e-commerce potential, say retail industry experts.
In 2010, consumer brand manufacturers ranked in the Internet Retailer 2011 Top 500 Guide put up solid—but not spectacular—results. The combined web sales of all Top 500 consumer brand manufacturers grew year over year 12.5% to $17.41 billion from $15.48 billion. In comparison, the fastest-growing group—web-only merchants—increased their collective e-commerce sales 30.8% to about $56.9 billion last year from $43.5 billion in 2009.
In fact, consumer brand manufacturers failed to keep pace with the growth of the Top 500 last year, and accounted for only 11.7% of all Top 500 sales of $150.0 billion in 2010, down from 12.2% of 2009 Top 500 sales of $127.1 million. "E-commerce rebounded nicely in 2010, but there are still a lot of consumer brand manufacturers sitting on the sidelines still not in the game and others that could be doing a lot more online," says Kasey Lobaugh, retail analyst and principal with Deloitte Consulting LLP. "Lots of manufacturers aren't doing anywhere near all they can to make e-commerce a significant revenue generator."
Even as more consumers research and buy online each year, many consumer brand manufacturers don't sell on their corporate web sites for fear of alienating their network of retailers and distributors that account for most of their sales. Some manufacturers still don't see online retailing as a top priority, says Lobaugh. "If you look at this group from an e-commerce capability standpoint, they are lagging," he says. "Growing a serious web retail operation takes a commitment from top management, but for many manufacturing company CEOs, e-commerce isn't their highest strategic priority."
At the same time, there are examples of consumer brand manufacturers that are putting their web stores on a fast track and using their e-commerce operations to create a strategic advantage. A case in point is Ralph Lauren Media LLC (No. 70), the e-commerce arm of apparel maker Polo Ralph Lauren Corp., which grew web sales 50% to $300 million in 2010 from $200 million in 2009.
Ralph Lauren credits a more diversified e-commerce operation as the key reason for its growth. In 2010, Ralph Lauren opened its first European web store in the United Kingdom, and projects e-commerce expansion in Asia in 2011. "While our European e-commerce initiative will be managed in-market, we are leveraging our RalphLauren.com team in the United States, and our existing technology and distribution partners, to help ensure a successful launch," chief operating officer Roger Farah told analysts on a recent earnings call. "We are excited about the long-term sales and profit potential of international e-commerce."
Among the current Top 500 Guide's 50 fastest-growing web retailers, six companies were consumer brand manufacturers with existing e-commerce operations: Fossil Inc. (No. 196), Ralph Lauren, Under Armour Inc. (No. 190), Tempur-Pedic International Inc. (No. 203), Burberry Ltd. (No. 400) and Jones Retail Corp. (No. 204). With web sales that grew 117.2% to $31.5 million in 2010, Columbia Sportswear Co. (No. 314) was the fastest-growing Top 500 brand manufacturer, followed by Fossil, which grew e-commerce revenue year over year by 50.2% to $75.5 million from $50.3 million. With 2010 web sales of $5.2 billion, Apple Inc. (No. 3) was the biggest manufacturer ranked in the current Top 500 Guide, followed by Dell Inc. (No. 4) with 2010 web sales of $4.8 billion and SonyStyle.com (No. 14), the e-commerce arm of Sony Corp., with 2010 e-commerce revenue of $1.96 billion.
Consumer brand manufacturers have certain advantages over other types of online retailers. In addition to controlling the inventory and most product information, many manufacturers can also sell online with a well-known brand consumers recognize. They can also choose to be one of the few sales channels for a hot product as Apple did recently when it used its 236 Apple stores in the U.S. and the Apple Online Store as a venue to purchase an iPad 2. Apple also sold through its iTunes store almost $5 billion worth of downloaded entertainment content and related products and services in the 2010 fiscal year ended Sept. 25, 2010.
But Apple is a rare example of a consumer brand manufacturer using its own brand exclusivity—and the web—to sell a hot product directly to the public. "What Apple did by making its stores and web store a place to buy an iPad 2 right from the start should raise a lot of eyebrows because it was a key example of how a consumer brand manufacturer can use the Internet to create a strategic advantage over other online retailers," says Mark McGuire, president of Alice.com (No. 467), an e-marketplace for household goods with products from 350 manufacturers, featuring everyday items such as trash bags, detergent and shampoos. "Apple's move will be a wake-up call to other manufacturers who should be asking: 'If they can offer exclusive product deals online, why can't we?'"
While many consumer brand manufacturers have snoozed historically compared with Top 500 web-only merchants, catalogers and retail chains in the race for e-commerce sales, there are trends forcing manufacturers to pay more attention to the web.
One was the decision by Procter & Gamble to start selling online, launching its PGeStore.com in May 2010 with the help of e-commerce services provider PFSweb Inc. P&G is one of the world's biggest consumer product manufacturers with annual sales of $79 billion and about 100 well-known household brands such as Tide detergent and Gillette razor blades. PGeStore.com carries over 50 P&G brands. "Procter & Gamble taking the web seriously enough to open an online store will be looked back upon as a watershed event that got other consumer brand manufacturers more interested in e-commerce," says McGuire.