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Smaller could be better
The new Internet Retailer Second 500 Guide shows strong growth for smaller e-retailers.
Associate Director of Research
Topics: Amazon.com, Bonobos, Dollar General, e-commerce spending, Internet Retailer Second 500 Guide, retail chains, richard mumby, sean cook, Second 500, Second 500 Guide, Second500, ShopVisible, Stage Stores, Top 500, web-only retailers
Here is what the average up-and-coming merchant in the new edition of the Internet Retailer Second 500 Guide looks like: It’s been selling online since 2007, sells exclusively on the web and grew its sales last year 17.7% over the prior year.
Now compare that to the larger merchants in the 2012 Top 500 Guide. The typical retailer there is web-only, too, but the average site launch date is 2000, and its growth averaged 14.4%, excluding Amazon.com Inc., No. 1 in the Top 500. Amazon’s sales increased 40.6% in 2011, and its huge weight raised the growth rate of the Top 500 to 20.4%.
Many of the retailers in the Second 500 Guide, which ranks retailers from No. 501 to 1000 in their North American online sales, can only dream of reaching 1% of Amazon’s $48 billion in 2011 sales. But, even with their limited budgets and staffs, these smaller e-retailers may have one edge over the big dogs: They can move quickly to respond to the rapid changes in e-commerce.
“We have the liberty to think through challenges and strategies quickly and without the hindrance of history,” says Richard Mumby, vice president of marketing for web-only retailer Bonobos. “We are a new brand so we can speak to customers the way we want to.” It worked for Bonobos in 2011, as the retailer of upscale men’s apparel, which was founded in 2007, grew sales by an estimated 66%, moving it up to No. 505 in the Second 500 Guide. Those results also helped Bonobos attract $16 million in investment funds from department store chain Nordstrom Inc. and others.
Bonobos isn’t the only one growing quickly. As a whole, Second 500 merchants grew web sales 17.7% from $2.78 billion in 2010 to $3.27 billion in 2011. Not only did that outpace the growth of Top 500 retailers—excluding Amazon—it also beat the results of last year’s Second 500, in which retailers grew sales 16.5% in 2010 compared with the year before.
And while total Second 500 sales of $3.27 billion only comprises 1.7% of total U.S. e-commerce sales of $194.7 billion, these e-retailers’ 17.7% growth rate in 2011 outperformed the U.S. e-commerce market growth of 16.1%.
Retail chains grew the fastest among Second 500 retailers, registering 18.67% growth from $494.5 million to $586.8 million. Close behind were web-only merchants with 18.41% growth from $1.56 billion to about $1.85 billion and consumer brand manufacturers with 18.40% growth from $449.1 million to $531.7 million. Retailers that sell through catalogs and the web lagged behind, generating 10.77% growth from about $276.1 million to nearly $305.8 million.
As far as a breakdown of Second 500 retailers by the principal markets in which they operate, the pet care category grew the fastest in 2011, as the 11 e-retailers there grew sales 35.9% as a whole. Mass merchants grew the second fastest with 34.0% growth, but those numbers are skewed upward by two large retail chains launching e-commerce sites in 2011. Stage Stores Inc. (No. 654), which operates 832 department stores, raked in $8.6 million in its first full year of online retailing, and Dollar General Corp. (No. 797), owner of more than 10,000 physical stores, brought in an estimated $4.5 million.
While Stage Stores and Dollar General are large, established companies, many of the fastest-growing Second 500 retailers are small and young. But they take advantage of their agility and use low-cost strategies like social media to connect with shoppers on a personal level, says Sean Cook, CEO of ShopVisible, an e-commerce technology provider that works with small to mid-sized retailers, including one Top 500 and three Second 500 retailers.
“In the Second 500, you’ve got a lot of retailers who don’t have the baggage of having these massive, monolithic technologies embedded, so they are able to adapt quickly and innovate,” he says. “They are experiencing this tremendous growth because they are connecting with consumers in new ways.”
For the first time the Second 500 is available in three formats: print, digital and as part of the all-new and completely updated Top500Guide.com. Information on how to order the fully updated 2012 Second 500 Guide is available here.