Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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One trend driving sales growth among the pure plays is the devotion to their niche and building an extremely diverse and loyal customer base. Among the virtual web-only merchants with the biggest annual sales gain are No. 45 Zappos, up 163% to $184 million from $70 million in 2003; No. 260 Thralow Inc., up 114% in 2004 to almost $13 million; No. 176 Backcountry.com, up 84% to $27.4 million from $14.9 million in 2003; and No. 111 Home Décor Products Inc., a home furnishings and décor retailer with 2004 web sales of $49.9 million, an increase of 83% from $27.2 million in 2003.
Pure-plays are successfully establishing leadership in certain product categories, including videos, jewelry, and health and fitness. For instance, No. 178 Ice.com, an online jewelry retailer, saw its sales jump 73% from $15.7 million in 2003 to $27.2 million in 2004. In the health and fitness niche, No. 160 BodyBuilding.com expects its 2005 sales to approach $45 million, up from 2004 sales of $32 million and $16 million in 2003, based on a loyal customer base and strong content that includes a library of more than 10,000 pages. Based on the need to become multi-channel, pure plays such as No. 123 Bluefly.com (2004 web sales of $43.8 million) and No. 382 DVD Planet (estimated 2004 sales of $4.6 million) are expanding into bricks-and-mortar locations.
But most virtual merchants prefer to concentrate on their Internet expertise. Web retailers across all categories, including pure plays, are using better marketing and merchandising tactics such as sending out e-newsletters loaded with specific content and promotional offers such as web-only specials and downloadable coupons redeemable both online and in stores. Web retailers, especially consumer goods manufacturers, also are looking to capitalize even more on their brand awareness to drive site traffic and convert sales.
Manufacturing online success
Online shoppers frequently visit manufacturers’ web sites to research product information and view content on the latest styles, features and colors. As statistics compiled about consumer brand manufacturers in The Top 400 Guide clearly indicate, more manufacturers are commerce-enabling their web sites and selling direct to the public. In 2004, customers spent almost $10 billion purchasing direct online from the manufacturer. That compares to category sales of $8.1 billion a year earlier, an increase of 23%.
Many of the nation’s biggest and most well-known consumer brand manufacturers, including No. 2 Dell, No. 7 Sony Electronics, No. 17 Apple Computer Inc., No. 110 Polo Ralph Lauren Corp., No. 193 Liz Claiborne Inc., No. 205 Patagonia Inc., No. 215 Fossil Inc., No. 218 RealNetworks Inc, No. 220 Tupperware Corp., No. 228 A/X Armani Exchange, No. 237 The Nautilus Group Inc., No. 240 Hershey Foods Corp., No. 241 Sara Lee Branded Apparel and others are ranked and profiled in The Top 400 Guide. In practically every instance, the e-commerce functionality, product displays and site search tools are as up-to-date and sophisticated as any competing chain retailer’s or direct marketer’s site.
The result of paying more attention to web retailing is helping consumer brand manufacturers complete more sales. For instance, The Pfaltzgraff Co., No. 285 in the Top 400 Guide, had web sales of $10.5 million in 2004, up 25% from $8.4 million in 2003. One reason for the growth in sales is the addition of a line of personalized dinnerware and a new web site, pfz.com, dedicated to promoting-and selling-the new product line.
Manufacturers are extremely brand-conscious and, in addition to selling direct to the public, also encourage multi-channel retailing by including links to their distributors and store locater buttons on their web sites. For instance shoe manufacturer Steve Madden Ltd., No. 374 with 2004 e-commerce sales of $5.2 million, features a series of pages on SteveMadden.com that enables customers to find a store in their state. Two search boxes also help customers search by store or by ZIP code.
Consumer brand manufacturers represented about 19% of all U.S. business-to-consumer e-commerce sales in 2004, compared to around 20% in 2003, according to The Top 400 Guide. It’s also clear that consumer brand manufacturers, like their chain retailer, catalog/call center and virtual (web-only) counterparts, are on an upward sales path. With U.S. Internet retailing sales historically growing at an average 20% to 25% annually, the industry is on track to achieve total sales of at least $106 billion in 2005.
Mark Brohan is lead researcher on The Top 400 Guide to Online Retailers and principal of Milwaukee, Wis.-based The Brohan Group, providing editorial and consulting services to the publishing industry.