May 9, 2012, 11:38 AM

Single-channel focus drives growth

Web-only retailers in the Top 500 Guide grew sales by nearly 32% in 2011.

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Web-only retailers grew their combined web sales in 2011 to $73.39 billion.

Jackthreads.com was a true start-up-from-nothing retailer in 2008 that had no outside funding and made merchandising decisions based on what felt right rather than hard facts. But starting in late 2010 and throughout 2011 the members-only young men’s apparel site began analyzing its data and then deploying new web site tools that drove sales growth.

That focus helped make Jackthreads.com (No. 440) the growth leader among web-only retailers in Internet Retailer’s 2012 Top 500 Guide, increasing 2011 web sales by about 355% to $20.21 million from $4.44 million in 2010.

Despite limited resources Jackthreads.com has grown because the company has been able to focus on the web as its sole sales channel, says Jason Ross, founder and CEO of the members-only apparel site. As a result the company’s merchandising tactics have changed over the years. “On the merchandising side, a lot of our decisions were made on gut feelings,” Ross says. “Then in late 2011 we got focused on data to be sure we knew who our customers were, and made sure our merchandising team was finding products appealing to them.”

Jackthreads.com’s growth stems from its ability to serve a niche market. It’s also an example of the advantage shared by all web-only retailers in the Top 500 Guide, namely that focusing on one channel gives them a major edge online over the e-commerce sites of retail chains, catalogers and consumer brand manufacturers, says Bernardine Wu, CEO of e-commerce consulting firm FitForCommerce. Like Jackthreads, many of the fastest-growing web-only retailers in the Top 500 Guide also target very specific markets.

That single-channel edge helped online-only retailers grow faster than any other merchant category in the Top 500 Guide. Led by Amazon.com Inc. (No. 1) web-only retailers grew their combined web sales 31.8% to $73.39 billion in 2011 from $55.68 billion in 2010.

Retailers that sell products solely on the Internet benefit from their focus on reaching their consumer targets, because they don’t have to manage the competition for company resources that is a fact of life at multichannel retailers and consumer brand manufacturers, Wu says. “Web-only retailers as a group, and Amazon in particular, are leading online sales growth because they are in a unique position to invest and optimize marketing and operations to fuel growth,” she says. “They don’t have to consider other channels in their overall strategy—that set of decisions and issues that complicates matters and makes e-commerce investment decisions for multichannel web retailers both more challenging and more costly.”

Even without Amazon’s 2011 sales, which grew by about 41% to $48.08 billion from $34.20 billion in 2010, web-only retailers beat the overall U.S. e-commerce growth rate of 16% for 2011, as determined by the U.S. Department of Commerce. Minus Amazon, online-only merchants in the Top 500 grew their combined sales by 17.8% to $25.31 billion from $21.48 billion in 2010. That rate exceeded the 14.4% growth of the Top 500 without Amazon, from $115.93 billion to $132.65 billion. Including Amazon, all Top 500 retailers grew their combined sales by 20.4%, from $150.13 billion in 2010 to $180.73 billion.

64 of the 198 web-only retailers, or 32%, matched or exceeded the Top 500 growth rate and a total of 77—39%—of them grew at a rate equal to or better than the increase in total U.S. e-commerce sales. That compares with 190, or 38%, of all Top 500 retailers that equaled or surpassed the 14.4% growth rate—without Amazon.

Few Internet-only retailers approach Amazon’s scale, but many e-retailers are doing quite well by taking advantage of niche markets and connecting with their customers. Web-only retailers are especially good at being found by their potential customers, and many of them are gaining expertise in marketing through online social networks.

Internet-only retailers matched the Top 500 as a whole in using two of the big three social media tools—Facebook, Twitter and YouTube. Of the 198 web-only retailers, 186 (94%) have a presence on Facebook, 180 (91%) on Twitter and 140 (71%) have posted videos on YouTube.

Web-only retailers are in synch with Top 500 retailers as a whole regarding use of Facebook and Twitter, but they lag in YouTube videos. The Top 500 retailers’ social media use breaks down as follows: 471 (94%) have a presence on Facebook; 455 (91%) on Twitter and 386 (77%) on YouTube.

While social media interaction has spread rapidly to older users, it is younger consumers who interact on the channels that drive sales growth at niche retailers such as Nasty Gal Inc. (No. 372). The retailer of trendy apparel for young women built its following on social media, and its customers feel they are part of the merchandising effort, says Sophia Amoruso, founder and CEO. NastyGal.com grew sales by 180% in 2011, to $28 million from $10 million in 2010.

Amoruso began selling vintage apparel on eBay and promoted products through her MySpace account. Interaction with her customers began there and has blossomed to Facebook and more than 336,000 Likes. “We are showing up and talking to customers on their level,” she says.

The five-year-old company has grown steadily and almost exclusively by word of mouth thanks to its vocal customer community, Amoruso says. “We have done very little deliberate marketing. Our business is built on the web interaction of shoppers and customers. Our average order value and conversion rates are relatively unchanged in the past few years.”

For the first time the Top 500 is available in three forms: print, digital and as part of the all-new and completely updated Top500Guide.com. Information on how to order the fully updated 2012 Top 500 Guideis available here.

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