June 1, 2012, 12:00 AM

Run for the money

As web-only retailers pull away from the Top 500 pack, retail chains face longer odds in the e-commerce race.

Lead Photo

These days an increasingly digitally connected consumer that's doing even more of her shopping online and the growing number of "for rent" and "space available" signs popping up in front of malls and shopping centers speak volumes about the shifting—and increasingly competitive—landscape of online retailing in the U.S. and Canada.

Not so long ago, a recognized retail brand, a decent e-commerce site and aggressive pricing were enough for a retailer to grow steadily online. The rising tide of e-retail lifted practically all web merchants' boats.

But today web retailing is bigger and more competitive, and the winners increasingly are separating themselves from the pack. Web-only retailers in particular are taking market share, and it's not just e-retail's juggernaut, Amazon.com Inc. (No.1). An analysis of the data from the newly published 2012 Internet Retailer Top 500 Guide shows just how quickly and significantly the U.S. and Canadian business-to-consumer e-commerce market is changing.

Consider these facts:

  • The retail industry grew as a whole in 2011, but e-commerce remains the fastest-growing channel. While total U.S. retail sales as measured by the U.S. Department of Commerce grew year over year about 5.6% to $2.88 trillion from $2.73 trillion, total U.S. e-commerce sales grew 16.1% to $194.3 billion in 2011 from $167.30 billion in the prior year. All Top 500 retailers, including both those based in the U.S. and Canada, grew sales year over year 20.4% to $180.73 billion from $150.13 billion.
  • Amazon again outpaced the market. The No. 1 e-retailer increased its sales 40.6% to $48.08 billion in 2011 from $34.20 billion in 2010. Amazon's growth rate was double that of the Top 500 as a whole, including Amazon. Without Amazon, the Top 500 grew 14.4%.
  • Web-only merchants continue to take market share from everyone else. In 2011, Top 500 web-only merchants grew much faster than every other merchant type—about 32% to a combined $73.39 billion in 2011 from $55.68 billion in 2010. Even without 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, a higher growth rate than any other type of merchant.

The pack

Other categories of web retailers also grew e-commerce last year, but not as much as Internet-only merchants. Store-based retailers grew year over year by 14.7% to $64.63 billion from $56.36 billion, while Top 500 catalog/call center companies increased their combined web sales about 12.3% to $22.32 billion in 2011 from $19.87 billion in 2010. Collectively, the consumer brand manufacturers ranked in the 2012 Top 500 grew their combined web sales year over year about 12% to $20.40 billion from $18.21 billion.

  • Chain retailers are counting on the web to do what their stores aren't doing: driving strong sales growth. In 2011 the web was the fastest-growing channel for 89.9%—62—of the chain retailers ranked in the Top 500 that break out store sales and other financials. For 67 of those retail chains—93.1% of the total—the growth online exceeded or at least equaled the growth in annual comparable-store sales. The disparity between online and offline results is driving many retail chains to close stores. An analysis of the major chain retailers ranked in the Top 500 in 2011 and 2010 shows that their total store count declined year over year 0.5% to 116,457 locations from 117,082.
  • In some product categories, such as books and music, the web is on its way to becoming the dominant way consumers shop. The sale of electronic reading devices, such as the Kindle from Amazon.com Inc. (No. 1), the Nook from Barnes & Noble Inc. (No. 32) and the iPad from Apple Inc. (No. 3), is a big reason behind the shift to consumers buying more of their books in digital form via the web. Bookstore sales in the U.S. declined year over year nearly 1% to $15.53 billion from $15.62 billion, according to the Department of Commerce. In comparison the growth in combined sales for Top 500 books/music/video merchants increased 20.4% to $6.63 billion. More important, Top 500 books/music/video retailers accounted for 40.1% of sales in the category in 2011, compared with about 33% in 2010.
  • The big keep on getting bigger. Driven by Amazon, which increased its sales year over year 40.6% to $48.08 billion from $34.20 billion, the Top 100 accounted for 87%—$157.23 billion—of all Top 500 sales, compared with 86.1%—$129.2 billion—in the prior year. Amazon's 2011 North American sales of $26.70 billion alone accounted for 14.8% of all Top 500 sales and 13.7% of all U.S. e-commerce sales. Among individual merchant types, Amazon's sales represented 65.5% of all Top 500 web-only sales, compared with the biggest retail chain, Staples Inc. (No 2), which with 2011 web sales of $10.6 billion accounted for 16.4% of all top 500 chain retailer sales, and Apple which accounted for 32.7% of sales among all Top 500 consumer brand manufacturers with Internet Retailer-estimated e-commerce sales of $6.66 billion. Among catalog/call center companies, the 2011 Internet Retailer-estimated web sales of $3.76 billion for Liberty Interactive Corp. (No. 7), which owns QVC Inc., represented 16.9% of all category sales.

The online retailing industry as a whole continues to put up healthy annual sales, and that's not likely to change. But to remain competitive, web retailers must keep pace with the changes in shopping behavior of today's increasingly digitally connected shoppers who can use their smartphones or tablet computers to research products and buy online whenever and wherever they want.

"There's not a lot of room to be a one-trick pony in the e-commerce business these days unless you are a truly unique niche merchant with merchandise that nobody else has," says Paula Rosenblum, managing partner of research and advisory firm Retail Systems Research LLC. "The leaders who are going to keep on making more space between themselves and their competitors are the ones that are keeping their brand and user experience relevant."

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