July 28, 2011, 2:32 PM

New and nimble tops older and slower

Merchants in the Internet Retailer Second 500 Guide grew faster overall than other retailers.

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Newer and more nimble Second 500 merchants grew faster overall than their bigger and older counterparts in the Top 500—at least in some categories, according to an analysis of data from Internet Retailer’s newly published Second 500 Guide.

Among the Second 500 merchant groups, chain retailers and consumer brand manufacturers increased sales faster in 2010 than Top 500 store merchants and manufacturers. The 81 small specialty chains and single store operators ranked in the Second 500 Guide grew their combined sales about 19% to $401.4 million in 2010 from $337.4 million in 2009. In comparison, the 153 Top 500 chain retailers grew collective sales year over year 11.3% to $55.3 billion from $49.7 billion.

While many Top 500 chain retailers continue to emphasize store operations over their web channel, more Second 500 chains are taking a more focused and nimble approach. At Carolina Rustica (No. 684), where web sales increased 57.1% to $5.5 million in 2010 from $3.5 million in 2009, founder and CEO Richard Sexton opened a store in 2001 and launched e-commerce a year later. But it was dealing with affluent buyers in the store—shoppers who frequently spend $2,000 and up for a unique piece of furniture—that taught Sexton how to build a winning customer service program online and a nimble web operation. “Home furnishings retailing is a highly tactile business where customers want to touch, feel and see if an item fits their personal taste,” Sexton says. “We learned first how to deliver that lesson in our store and then to replicate the experience online.”

Consumer brand manufacturers ranked in the Second 500 also grew faster online in 2010 against their bigger manufacturer counterparts in the Top 500. In 2010 the 58 Top 500 manufacturers as a group grew web sales about 12.3% to $17.4 billion from $15.5 billion in 2009. But the 80 consumer brand manufacturers ranked in the Second 500 collectively grew e-commerce revenue year over year 16.1% to $431.6 million from $371.8 million. As a group, many Top 500 manufacturers still aren’t living up to their full potential online.

But Second 500 manufacturers such as Case Mate (No. 648), a maker of protective cases for various mobile devices and an online retailer since 2006, sees the web as the fastest way to reach the growing audience of consumers trading up their old cell phone for newer and more web-enabled smartphones and tablets. Web sales for CaseMate.com grew 172% to $6.8 million in 2010 from $2.5 million in 2009. Last year Case Mate also invested $2 million in its e-commerce business, including adding on more full-time staff and rolling out a next-generation web platform. The upgrades and added staff are paying a dividend in the form of more repeat customers, says vice president of e-commerce Adam Roe. “Our repeat purchases are above 30%,” he says.

The biggest group of Second 500 merchants—286 web-only retailers—grew as a group in 2010, but not as fast as Top 500 web merchants. Second 500 web-only merchants increased their combined sales 16.7% to $1.4 billion in 2010 from $1.2 billion in 2009 compared with Top 500 web-only retailers that grew year over 30.5% to $56.9 billion from $43.6 billion. Even when Amazon.com and its 2010 web sales of $34.2 billion are backed out, the remaining Top 500 web-only retailers still grew their combined web sales 19.5% to $22.7 billion from $19.0 billion.

But while Top 500 web-only retailers grew faster as a group, Second 500 online-only retailers control a bigger share of their total market. The 286 online-only retailers ranked in the Second 500 Guide accounted for 56.7%, or about $1.4 billion, of sales of $2.47 billion among all Second 500 merchants. In comparison, the big web-only merchants ranked in the Top 500 Gide control just 37.9%—$56.9 billion—of all Top 500 sales of $150.0 billion. Among the Second 500, web-only merchants also account for 57.2% of the total number of retailers ranked in the Second 500 Guide, compared with 41%—205—among the Top 500. When Amazon.com is taken away from the Top 500 web-only merchants, the dominance of the online-only retailers in the Second 500 Guide is even more compelling. Without Amazon, the remaining 204 web-only merchants account for only 15%, or $22.7 billion, of all Top 500 sales in 2010.

Top 500 web-only retailers can be nimble and quick to innovate—but not nearly as fast as Second 500 online-only merchants. For CellPig.com (No. 996), success depends on consumer demand for cell phone accessories. Launched in 2009 with an idea that came from a brainstorming session over beer and chicken wings, CellPig.com is aiming to take advantage of the explosion in smartphone use, says co-founder Mike Kane. So far carving out a niche in selling phone accessories online is paying off with web sales for CellPig.com growing over 1400% to $291,000 in 2010 from $19,000 in 2009. “We are ordering $20,000 to $30,000 worth of products every two to three months,” says Kane.

As in the Top 500, it was Second 500 catalog companies that represented the slowest growing merchant group. Last year the 43 catalogers ranked in the Second 500 grew their combined sales year over year about 8% to $233.9 million from $216.7 million compared with Top 500 catalogers that together posted web sales of $20.4 billion, up 10.9% from online sales of $18.4 billion in 2009.

Catalogers in both the Second 500 and the Top 500 continue to wrestle with higher print and mail costs, making it more difficult to shift more resources to online. But some Second 500 catalog companies are hitting a sales fast track by sticking with their niche and becomig specialized product experts.

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