Meanwhile, PayPal acquires mobile payments firm Paydient.
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Another big web retailer that continues to diversify is Newegg (No. 9). Sales for many online electronics retailers flat-lined in 2008, but Newegg grew its sales year over year by 10.5% to $2.1 billion by launching NeweggMall.com, a mass merchandise web site with more than 15,000 products in categories including beauty, travel, and home and garden, and creating a new Canadian e-commerce site.
The outsource option
Without diversification or the resources to run a bigger operation some Top 500 retailers, such as Discovery Communications LLC (No. 191), are finding that maintaining the status quo is not enough to stay competitive. Just two years ago Discovery Commerce, the retail arm of Discovery Communications, closed 100 stores to concentrate on web retailing, using its own in-house technology platform, marketing program and fulfillment operation. But after years of stagnant web sales, Discovery outsourced the entire operation of DiscoveryStore.com to Delivery Agent Inc., a third-party provider of online retailing, digital advertising and content services to entertainment companies.
Delivery Agent now operates all aspects of DiscoveryStore.com. “To compete in the e-commerce business today, you have to ramp up and be a big online retailer with the infrastructure to back it up or settle for being a niche provider,” says Discovery Commerce and Digital Media chief operating officer Kelly Day. “We were in the middle and not growing. Signing a deal with Delivery Agent was a good alternative.”
In 2008, the retailers that grew the fastest in a tough economic environment were the merchants that continued to diversify their product lines or develop niches that appeal to a certain online audience. While some apparel retailers that cater to older women such as Talbots (No. 106) and Coldwater Creek Inc. (No. 70) finished 2008 with declining e-commerce sales, other merchants, especially chains that target a younger and more web-savvy audience, enjoyed solid growth. Just two years after launching its web store, Aéropostale Inc. (No. 156) increased web sales by 85% to $79 million in 2008, while Yoox.com (No. 79), an international e-retailer, grew sales by 57.9% to $192.1 million. Other youth-oriented chains with notable increases were American Apparel Inc. (No. 236), up 55.1% to $39.4 million; Hot Topic Inc. (No. 211), up 33.4% to $45.7 million; and American Eagle Outfitters Inc. (No. 54), up 26.1% to $307 million.
“Last year was the most difficult year in memory in retailing, but the online merchants that had the right price points and delivered the best web shopping experience to a targeted audience could still put up healthy numbers,” Baird says. “Teenagers and women in their 20s grew up on the web and for many young people it’s their favorite way to shop.”
As in previous years, web-only merchants posted the biggest increases in Internet sales across all merchant categories in 2008, thanks to Amazon.com, which accounted for 52% of category sales. Apart from that, sales growth was surprisingly strong across categories, with the exception of catalogers. Combined sales for all Top 500 web-only merchants grew year over year by 20.7% to $36.84 billion from $30.52 billion. Without Amazon, sales for all other Top 500 Internet-only retailers grew 12.4% to $17.67 billion from $15.72 billion in 2007.
Top 500 retail chains grew their combined web sales last year by 12% to $45.11 billion from $40.37 billion. Top 500 consumer brand manufacturers grew their web sales by 15.3% to $14 billion from $12.14 billion in 2007. Only Top 500 catalog companies posted a drop in sales last year, declining by 3.6% to $19.90 billion from $20.65 billion in 2007.
With sales that increased 172.7% to $12 million in 2008 from $4.4 million in 2007, GourmetGiftBaskets.com was the fastest-growing Top 500 web-only retailer. In a tough economy where many consumers cut back on discretionary items, GourmetGiftBaskets.com (No. 446) overhauled its web site with new options to customize a gift basket and easier ways to shop. GourmetGiftBaskets, which is run by a second-generation family floral business, added customer reviews, and completely revamped its site search program and page navigation. Shoppers at GourmetGiftBaskets.com can now easily browse by category, price, occasion and specialty items.
With better navigation, shoppers can also complete a custom order in as few as five steps. “Well over half of our customers are repeat shoppers and we implemented a number of initiatives that made it easier for them to complete a custom order online,” says GourmetGiftBaskets.com president Ryan Abood. “The gifts baskets business can be pretty cookie cutter. We grew because we listened to customers, gave them the site improvements they asked for and still kept each order highly personalized.”
Among catalog companies, Green Mountain Coffee Roasters Inc. (No. 120) was once more the fastest-growing company in the category with web sales that grew 86.1% to $111.3 million from $59.8 million. To drive its online business, Green Mountain expanded the value of its Café Express, its web shopper loyalty program, by offering two free bags of coffee, $2 off on cups, $1 off on a bag of coffee and a 10% discount on non-coffee items. As result, Green Mountain doubled the number of Café Express members to about 135,000 in the past 12 months. In its e-mail and conventional direct mailing program to Café Express members, Green Mountain emphasized the value, speed and convenience of shopping online over standing in line at the grocery store or a coffee shop.
In its online inventory, Green Mountain also can offer web shoppers more than 200 types of gourmet coffee, compared with only about a dozen to 20 brands in a typical grocery store. “Café Express members are our most loyal customers and we drove web sales higher in a tough economy by offering them more value along with the easiness of buying coffee and brewers online,” says Ken Crites, director of consumer direct for Green Mountain’s specialty coffee business unit. “We emphasized they could get bargains but still easily shop our e-commerce sites for more than 200 gourmet products without having to drive to the store or put up with grumpy servers. We tell customers: why go to the store when you can find the same value or better online and have an easier time shopping.”