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Stores that take advantage of the web more than hold their own
Eight of the decade’s 10 fastest-growing Top 500 retailers are retail chains.
Senior Editor, Research
Topics: 2013 Top 500 Guide, Amazon.com, Children's Place, Crosschannel, e-commerce statistics, Estée Lauder, Francic Conforti, in store fulfillment, Luxottica, multichannel, Nikki Baird, order management systems, Retail chains and e-commerce, Richard Hayne, Top 500, Top 500 Insider, Top500Insider, Urban Outfitters
For all the talk about how e-commerce threatens the existence of bricks-and-mortar stores, Urban Outfitters Inc. is an example of a retail chain that has found a way to succeed online.
In the last 10 years, the merchant has gone from an e-commerce team of a dozen to more than 75 today, and from around $7.2 million in online sales to $663.3 million last year—a compound annual growth rate of 65.2%, the highest of the 146 retailers listed in the 2013 Top 500 Guide that have been around since Internet Retailer published the inaugural edition in 2004.
Company executives attribute this success in part to their early decision to take advantage of store inventory to fulfill web and other orders—thereby meeting growing expectations of speed and convenience from shoppers.
The retailer in 2012 linked up all of its store and web inventory into one order management system, so that any order—whether placed through the web site, a call center, via a mobile device or by a shopper in a store who can’t find the item she wants—can be fulfilled from the most efficient location—a store or a fulfillment center.
This has had a major impact on sales, CEO Richard Hayne told investors in late 2012. “During the third quarter, $23 million of direct-to-consumer-initiated demand was filled from the stores. Without this initiative, we estimate that one-half of that demand would have been lost due to out-of-stock positions in our fulfillment centers. In addition, this initiative has helped us to lower markdowns and enable the brands to plan their inventory with tighter weeks of supply.”
Urban Outfitters is counting on the consolidated fulfillment system to generate more of the strong results the retailer has delivered in both channels over the last decade. Total sales have increased from around $423 million in 2003 to $2.47 billion in 2012. Net income has grown from $27.4 million in 2003 to $237.7 last year—a 768% increase—and the stock price has gone from around $3 in 2003 to $40 today—a 1,233% increase. Moreover, the web accounted for nearly 30% of the retail chain’s total sales in the fourth quarter, chief financial officer Francis Conforti told analysts in March 2013. By 2017, the merchant expects that percentage to rise to 50%.
Urban Outfitters isn’t the only retail chain that has successfully withstood the competition from web retailers. In fact, eight of the top 10 fastest-growing merchants online listed in the Top 500 Guide for the last 10 years, in percentage terms, are retail chains. The other two are consumer brand manufacturers, The Estee Lauder Cos. Inc. (No. 59) and Luxottica Group S.p.A. (No. 132), and much of their growth came through acquisitions.
Sure, the retail chains that have grown fastest on the web in the last 10 years—including Urban Outfitters and The Children’s Place Retail Stores Inc. (No. 112)—grew from a smaller base than Amazon.com Inc., which was already bringing in more than $5 billion on online sales in 2003. But they also had the foresight 10 or more years ago to know that e-commerce could potentially be a game changer for their businesses and for retail as a whole, says Nikki Baird, managing partner of research and advisory firm Retail Systems Research. They invested in building e-commerce sites that would complement store shopping, and they adapted to technological advances that allowed connecting with shoppers in new ways.
“While there are exceptions, most of the retailers that have succeeded in the last 10 years have been aggressive about cross-channel initiatives,” she says. “Especially with Urban Outfitters, Ann Inc. and Macy’s, these guys are making investments that enable them to connect online demand to inventory in the store. The stars of cross-channel happen to be on the top of this list.” Ann Inc. (No. 88) grew online sales from an estimated $5.6 million in 2003 to $313 million in 2012—a 5,509.3% increase, or a 56.4% compound annual growth rate. Macy’s (No. 12) grew 2,559.2% from $119.1 million to $3.17 billion, a compound annual growth rate of 44.0%.
As a whole, retail chains grew online sales 13.6% in 2012 to $75.44 billion from $66.38 billion in 2011. That’s the second-fastest growth among the four classes of merchants, behind web-only retailers, which grew sales to $91.58 billion from $73.33 billion—a 24.9% increase. Consumer brands grew 12.5% to $24.54 billion, while catalogers increased web sales 9.9% to $24.62 billion from $22.40 billion.
More on Top 500 retailers, metrics and analysis is contained in the 2013 Top 500 Guide.
The 2013 Top 500 Guide 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 new 2013 Top 500 Guide is available here.