July 27, 2011, 10:42 AM

Second 500 chains embrace the web faster than the big-box stores

Retail chains were the fastest growing merchant type in the new Second 500 Guide.

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There’s a paradox when it comes to e-commerce between the biggest chain retailers, some of the most recognizable brands in the Top 500, and the smaller store retailers ranked in the newly published Internet Retailer Second 500 Guide.

Both sets of store merchants are selling over the web, but the small guys embraced an opportunity to grow quickly online while the bigger chains dawdled. In 2010, the specialty chain retailers and small store merchants ranked in the Second 500 grew faster than Top 500 chain retailers.

When e-commerce began coming of age in the late 1990s, many big chain retailers saw the Internet as a threat. They took a long time to open a web channel compared to web-only merchants and direct marketers, and saw online retailing as a secondary channel to stores.

Today, while some big chains such as Macy’s Inc., No. 17 in the Internet Retailer Top 500 Guide, are flourishing, other chains are runners-up in the online retailing race or losers in the race altogether. In 2010, Wal-Mart Stores Inc. (No. 6), the biggest retail chain, generated only $6 billion in web sales last year while the biggest web-only retailer—Amazon.com Inc. (No. 1)—posted web sales of $34.2 billion. While Amazon concentrated on growing online in a newly emerging retail channel, Wal-Mart ignored an early opportunity and concentrated on stores.

Likewise, Borders (No. 200) might not now be going out of business if earlier on they had not seen e-commerce as an afterthought and farmed out their web store to Amazon.

In contrast to slower moving Top 500 chains, Second 500 chain retailers last year grew their combined web sales almost 19% to $401.4 million from $337.4 million in in 2009. In comparison the Top 500 chain retailers grew their collective web sales just 11.3% to $55.3 billion in 2010 from $49.7 million in 2009.

In the Second 500, retail chains were the fastest growing merchant type. But among the Top 500, chain retailers didn’t grow as fast as the market leaders—web-only merchants—or consumer brand manufacturers, the runner-up.

While many Top 500 chain retailers continue to emphasize their store operations over the web, Second 500 merchants are growing faster online by taking a focused and more nimble approach.

Learning the basics of selling highly specialized merchandise, such as yarn to knitting enthusiasts, first in a store environment is paying online dividends for Jimmy Beans Wool (No. 778). In 2010 web sales increased about 56.5% to $3.6 million from $2.3 million. E-commerce sales for Jimmy Beans Wool, which began selling online in 2002, are on track to grow by about 59% to $5.7 million in 2011, the retailer says. By first opening a single yarn store, founder and CEO Laura Zander learned the basics of retailing—and built a business that offers more than 14,000 types of specialty yarn to a growing base of national and international web shoppers.

“Our niche is very touchy and feely and made up of very enthusiastic doers,” says Zander. “Because our store customers and knitting classes in the store help us to really know and understand yarn, we can bring that same expertise and product specialty to the web.”

The 2011 Internet Retailer Second 500 Guide ranks profiles and analyzes the next 500 retailers by online sales after the 500 ranked in the Internet Retailer Top 500 Guide, including several that are growing rapidly. For information on how to order click here. To see the full list of Second 500 merchants click here.

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