March 2, 2009, 12:00 AM

Blue Nile leads the way as online retail stocks outpace the market

The Online Retail Index of 25 e-commerce stocks fell 1.4% last week, which wasn’t bad in a week when the Dow dropped 4.1% and S&P 500 4.5%. Investors expect e-retailers will fare better in the recession than stores, says stock analyst Colin Sebastian.

Everything’s relative. And while online retailers no doubt will struggle to grow during this economic downturn, investors seem to believe they will fare better than physical stores, which is helping e-commerce stocks from falling as fast as the broader market.

That trend held last week as the Internet Retailer Online Retail Index of 25 e-commerce stocks declined 1.4%, while the Dow Jones Industrial Average dropped 4.1% and Standard & Poor’s 500 Index sank by 4.5%. Leading the way among e-commerce stocks was online jeweler Blue Nile, whose stock rose 12.5% last week. The previous week Blue Nile had reported a 7% drop in sales, but CEO Diane Irvine assured analysts the company was well positioned to gain market share at a time when many bricks-and-mortar jewelry stores are closing.

“Blue Nile and other e-commerce stocks have fared well of late in part due to the perception that these companies are in stronger competitive positions vis-à-vis their offline competitors,” says Colin Sebastian, senior vice president of equity research at Lazard Capital Markets. “We expect another challenging year ahead, but some investors are taking an opportunity to buy shares at discounted prices in high-quality companies that have sustainable and profitable business models.”

It was the fourth week in a row since Internet Retailer launched its Online Retail Index in early February that the e-commerce index had outperformed the broader market. Of the 25 stocks in the Online Retail Index, 11 gained during the week that ended Friday afternoon, while 14 declined in price.

The top five performers for the week, with percentage gain, were:

  • Blue Nile, 12.5%
  • NutriSystem, 10.3%
  • GSI Commerce, 6.4%
  • Omniture, 6.4%
  • VistaPrint, 4.0%

The five worst performers for the week, with percentage declines, were:

  • American Greetings, -19.1%
  • DemandTec, -17.8%
  • Keynote Systems, -11.4%
  • eBay, -10.8%
  • Systemax, -7.3%

The Online Retail Index, which was benchmarked at 100 as of Jan. 1, 2009, now stands at 95.4, meaning it’s up down 4.6% for the year.

The 25 companies in the Internet Retailer Online Retail Index are: Akamai Technologies, Inc., American Greetings Corp., Art Technology Group Inc., Inc., Blue Nile Inc., CyberSource Corp., DemandTec Inc., Digital River Inc., Inc., eBay Inc., GSI Commerce Inc., Interwoven Inc., Keynote Systems Inc., LivePerson Inc., Netflix Inc., NutriSystem Inc., Omniture Inc., Inc., PetMed Express Inc., RealNetworks Inc., Shutterfly Inc., Systemax Inc., United Online Inc. (owner of and VistaPrint Ltd.

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