June 2, 2005, 12:00 AM

The Top 400 Guide

(Page 2 of 3)

Many of the nation’s largest and best-known chain retailing, direct marketing and web retailing companies are represented in the top 100. But while the big are getting bigger in the U.S. Internet retailing market, the web still makes up only a small percentage of many large chain retailers’ total sales. For instance, Wal-Mart Stores Inc., which employs more than 1.5 million associates worldwide in more than 3,600 Wal-Mart and Sam’s Club stores in the United States and more than 1,570 in other countries, is the world’s largest retailer with 2004 sales of $285 billion. But while its estimated 2004 web sales of $782.2 million are impressive and rank Walmart.com, which also includes the online sales of Sam’s Club, as No. 12 in the Top 400 Guide, the web represents less than 1% of all sales. Similarly, web sales account for about 5% of total sales at Sears, 4% at J.C. Penney Co., 3% at Best Buy Corp., 2% at Target Corp. and 1% at Kmart Corp., which in March completed a merger with Sears to form Sears Holdings Corp.

Learning from offline

As a category, many chain retailers came later to the web and business-to-consumer e-commerce than their direct marketing and Internet-only competitors. While there were exceptions such as Macy’s, a unit of Federated Department Stores Inc., that began selling online in 1998, many chains didn’t understand the Internet as a new merchandising tool and feared the web would hurt existing sales channels. As a result, many chains early on launched limited e-commerce sites with only a few product categories or formed separate Internet divisions and stand-alone units. But times change and now chain retailers are using their considerable merchandising, supply chain, technology and marketing resources to make the web a key component of their respective multi-channel retailing strategies.

For instance, Neiman Marcus Group Inc. used 2004 to expedite e-commerce through initiatives such as more effective cross-channel promotions. Though Neiman Marcus operated one fewer web store after selling its Chef’s Catalog brand to Pikes Peak Direct Marketing Inc. in November, the chain still achieved 2004 web sales of $240 million, up 49% from $161 million in 2003. Other chain retailers turning in impressive sales performances last year include Williams-Sonoma Inc., which racked up web sales of $477 million in 2004, a 43% increase over $333 million in 2003, and J.C. Penney, with web sales that grew 32% from $617 million in 2003 to $812 million. Of all the chains ranked in the Top 400 Guide, only bookseller and multi-channel retailer Barnes & Noble experienced declining sales, with 2004 web sales down 1% from $424.8 million in 2003 to $419.8 million.

Across all retailers ranked in the Top 400 Guide, using the web to drive multi-channel sales or using stores and catalogs to emphasize the speed and convenience of shopping online remained a top priority. For instance, many traditional catalog and direct marketing companies are now posting interactive editions of their catalogs and updating their web sites with catalog quick order boxes or enhanced search tools that enable catalog shoppers to quickly and easily find products. Catalogers also are using the web to test new products, text and images before printing their next editions. Innovations such as these are helping many catalogers achieve higher web sales and make the Internet their biggest merchandising channel. Both No. 70 Crutchfield, which had 2004 web sales of $108 million, up 33% from sales of $81 million in 2003, and No. 80 Drs. Foster & Smith, a catalog company with web sales of $90.1 million in 2004, up 29% from $69.9 million in 2003, are quickly approaching the day when 50% of all revenues will be generated by e-commerce. And those companies aren’t alone.

Because of their direct marketing business models, catalogers are well poised to sell successfully online, and several catalog and call center companies posted significant year-to-year sales gains in the Top 400 Guide. Among those with the biggest gains were No. 116 PetMed Express Inc. (2004 web sales of $47 million, up 94% from 2003); No. 139 Fingerhut Direct Marketing Inc. (2004 web sales of $39 million, up 62% from 2003); No. 172 Barrie Pace, a unit of Hartmarx Corp. (estimated 2004 web sales of $29 million, up 44% from 2003); No. 8 CDW Corp. (2004 web sales of $1.5 billion, up 44% from 2003); No. 71 Lillian Vernon Corp. (estimated 2004 web sales of $108 million, up 35% from 2003); and No. 52 Oriental Trading Co. Inc. (estimated 2004 web sales of $160 million, up 33% from 2003).

Solid e-commerce strategies

Catalogers jumped to the web early on, but in many merchandising niches, virtual web-only merchants were there before them. In the late 1990s, high profile start-ups such as Pets.com, Garden.com, Kozmo.com and WebVan poured in millions of dollars, developed complex business models, recruited top management talent and prepared for the day when an initial public stock offering would create a handsome return on investment. But many pure-plays were forced to fold, victims of the dot-com bomb, a slowing economy or the failure to build a merchandising strategy that generated visitors and sales.

Today, most virtual web-only merchants have built solid e-commerce strategies to remain competitive, and the ranks of pure play Internet retailers are well represented in the Top 400 Guide. Amazon.com still dominates the category. The next largest virtual merchant is No. 9 Newegg, followed by No. 18 Netflix Inc. with 2004 web sales of $506 million, No. 19 Overstock.com Inc. with 2004 web sales of $494.6 million, and No. 28 Drugstore.com Inc. with 2004 web sales of $360.1 million.

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