The social network, with 60 million daily users, plans to begin selling sunglasses with a built-in camera for $129.99.
Online retailing weathered the storm in 2008 and finished as the only growth driver for the retail industry.
Last year showed online retailers an unpleasant and previously unacknowledged truth: E-commerce is subject to the same economic forces as the rest of the economy. For the first time in their dozen years of history, e-commerce sales grew at only a single-digit rate. But 2008 also confirmed what many e-retailers knew: Consumers are hooked on shopping online. As a result, online retailing has withstood the economic storm better than other areas of the industry and is one area of retailing that experienced growth last year.
Sales of the Top 500 online retailers grew 11.7% to $115.85 billion in 2008 from $103.69 billion in 2007 while Internet Retailer estimates the total retail sales market grew 1.4%. Those broad numbers, however, mask some interesting developments that indicate the fundamental strength of online retailing. For one thing, while chain retailers’ web sales were growing, their comparable-store sales were shrinking. In fact at 41 of the 50 biggest chains, e-commerce revenue grew as comparable-store sales declined. And at six, web sales declined, but not nearly as much as same-store sales.
In fact, overall web sales were responsible for 20% of the growth in total retail sales last year while accounting for about 6.5% of sales. Internet Retailer calculates that web sales across the board added up to $178.18 billion in 2008, up $7.7 billion, or 4.6%, from $170.41 billion in 2007. Sales across all general merchandise, excluding restaurants, gasoline stations and fuel sales, as measured by the U.S. Department of Commerce, equaled $2.744 trillion, up $39 billion, or 1.4%, from $2.705 trillion a year earlier.
Total online sales are made up of $115.8 billion in sales by the Internet Retailer Top 500, an Internet Retailer-estimated $21.6 billion in U.S. gross merchandise volume at eBay, and $40.7 billion in sales by online retailers not in the Top 500, an Internet Retailer estimate based on the U.S. Department of Commerce report of online sales. For the previous year, sales consisted of $103.7 billion in sales by the Top 500, $23.4 billion in U.S. gross merchandise volume at eBay and $43.3 billion in non-Top 500 sales. Clearly, 2008’s sinking economy took its toll on the smallest retailers-the non-Top 500 retailers and eBay sellers.
Top 100 dominate
In 2008, while the deepest recession in decades and a cutback in consumer spending forced some well-known store chains, including Circuit City Stores Inc. (No. 17) and KB Toys Inc., into bankruptcy, the combined sales of the Top 100 e-merchants grew by 14.3% to $98.60 billion from $86.30 billion in 2007. The biggest 100 accounted for 85.1% of sales in 2008 compared with 83.2% in the prior year. Smaller niche Top 500 merchants also slightly outpaced the overall e-commerce market. Last year the combined revenue of the Top 500’s 100 smallest merchants-companies with annual e-commerce revenue of $9 million to $15.2 million-increased by 13.2% to $1.20 billion from $1.06 billion in the prior year.
Amazon.com Inc. (No. 1) continues to dominate the market because of its sheer size. Last year sales at Amazon grew more than five times faster than the rest of the business-to-consumer e-commerce market-up 29.5% to $19.17 billion from $14.80 billion in the prior year.
Amazon remains the largest web retailer because the company continues to expand overseas and diversify into new merchandising categories. Amazon opened 12 new web stores in 2008-28 in the past two years. Amazon also continues to invest heavily in technology and new products such as Kindle, its electronic book reader. Last year Amazon invested just over $1 billion, or 5% of revenue, on technology and content. Amazon also continues to build a bigger international base. Overseas sales now represent 46.6% of total sales and grew by 33.3% to $8.93 billion in 2008 from $6.7 billion in 2007. Consumers also responded to Amazon’s low prices and to Amazon Prime, which for $79 a year provides free two-day express shipping and one-day delivery upgrades for $3.99. In 2008, Amazon added more web stores, including an election store and a microsite for out-of-circulation and hard-to-find CDs.
In 2008, other Top 100 retailers grew because they made key acquisitions or continued to invest in technology, product development or updated web site features such as customer reviews and videos. Aided by its $4.4 billion acquisition of Corporate Express LLC in July, for instance, Staples Inc. (No. 2) controlled about 44% of the online office supplies category in 2008, up from 41% in 2007. The acquisition of Corporate Express, which added an estimated $1.65 billion in online revenue last year, also helped Staples increase its total web sales by 37.5% to $7.7 billion in 2008 from $5.6 billion in 2007.
In previous years, when the U.S. online retailing market grew at an annual rate of 25% or higher, web retailers had an easier time attracting customers and building up their e-commerce channel. But the harsh economic conditions of 2008 changed the fundamental nature of online retailing. Size still matters, but going forward only the web merchants that offer consumers the best online shopping experience, competitive pricing and superior merchandise will survive and grow.
“In 2008 the wheat came off the chaff in online retailing,” says Nikki Baird, managing partner at research firm RSR Research. “The online retailers that just count on being the lowest price provider aren’t going to be around for the long term. The ones that survive and grow will be ones that run a very efficient operation and give consumers the best customer service and shopping experience.”
While Circuit City succumbed to bankruptcy in 2008, Best Buy Co. (No. 10) grew web sales by 13.1% to an estimated $2.01 billion and laid the foundation for greater long-term e-commerce growth. Expanding in digital content, Best Buy in September acquired online music service Napster for $121 million. Best Buy also created a dedicated web site for Spanish-speaking shoppers last year and launched a $2.1 billion joint venture in Europe with The Carphone Warehouse Group PLC aimed at the consumer electronics and mobile commerce market.