A discussion draft of the Online Sales Tax Simplification Act of 2016 is expected to be introduced in Congress soon.
Web retailers took market share from stores during the Great Recession, and the biggest mass merchants were the biggest winners online.
Tough times left plenty of stores with empty cash registers and only thinly stocked shelves last year, but when consumers did shop it's clear they spent a lot more of their time and money online. Sales of the 2010 Internet Retailer Top 500 are strong evidence that in 2009, even as catalog and store sales slumped, consumers still used the speed and convenience of online retailing to do more of their shopping.
As a result e-commerce sales grew last year while total retail sales fell. The increase in online retail sales was modest compared to the first decade of e-commerce when the market was growing by 20% and more each year. But the Internet remains the retailing industry's only growth area. Last year total e-commerce sales increased 2% to $134.9 billion from $132.3 billion in 2008 while total retail sales declined year over year by nearly 3% to $2.07 trillion from $2.13 trillion, the U.S. Department of Commerce reports.
The fact that e-commerce sales grew while total sales fell underscored the permanent shift by consumers to more Internet shopping. With even more options such as mobile commerce making shopping online quicker and easier, many consumers avoided trips to the store. Instead they flocked to the Internet to find which online retailers had the cheapest price, best deals and most product information.
"People still have to shop for necessities and last year the web was the bargain hunter's best friend," says Nikki Baird, managing partner of research and advisory firm RSR Research. "Even if they just shopped for the basics, consumers still did more of their buying over the web."
This year's Top 500 Guide reveals several trends that emphasize consumers' continuing shift to online buying and the gains of large retailers:
- The Top 500 retailers' sales grew 8.7% to $126.38 billion in 2009 from $116.28 billion in 2008.
- The Top 500 completed an estimated 601.8 million sales in 2009Ñup 2.9% from 585.1 million in 2008.
- Total traffic to the Top 500 increased year over year to 2.58 billion monthly visits from 2.10 billion visits in 2008.
- Web sales now account for 6.5% of retail sales, up from 6.2% a year earlier. Retail sales include general merchandise, but exclude restaurants, gasoline stations and fuel sales.
- The web grew for most chain retailers while comparable-store sales fell. For 26 of the 50 biggest chains, e-commerce sales grew while comparable-store sales dropped. For 11 others, the web grew faster than or didn't decline as much as comparable-store sales.
- The Top 100 grew 9.1% and the smallest 100 grew 2%, further evidence that big online retailers are taking market share.
In 2009, every Top 500 merchant group with the exception of catalogers posted a gain in web sales. But the merchants that grew the fastest were web-only retailers.
Led by Amazon.com (No. 1), the combined web sales for all Top 500 web-only merchants grew 19.8% to $42.94 billion in 2009 from $35.83 billion in 2008. In 2009, despite the tough economy, Amazon's sales grew 28% to $24.51 billion from $19.17 billion in the prior year. In comparison, total sales for Wal-Mart Stores Inc., the biggest chain retailer, grew only 1% to $405.04 billion in 2009.
Amazon dominated online retailing last year by accounting for 19.4% of all Top 500 sales and 57.1% of all web-only merchant sales. In 2009 Amazon grew 14 times faster than the entire e-commerce market because Amazon had the brand, low prices, product innovations and variety of merchandise that resonated with online shoppers.
Three years ahead
Despite its size, Amazon.com also continued to execute better on customer service and merchandising than many other online retailers. In October, Amazon made shopping even easier for its big metropolis shoppers by introducing same-day delivery in New York and six other major cities.
Last fall Amazon also introduced an updated and more affordable Kindle electronic reading device that can be purchased online and shipped to more than 100 countries. It also upgraded its mobile commerce program with one-click shopping. And Amazon made the biggest online retailing acquisition of recent history when it purchased Zappos.com in July for almost $900 million in cash and stock.
"Amazon easily has a three-year lead in deep thinking around some of the most important aspects of e-commerce," says Scot Wingo, CEO of ChannelAdvisor Corp., which helps retailers sell through online marketplaces such as Amazon and eBay. "Amazon is first and foremost a retailer. They have teams of people that are organized by category, that know the category extremely well and focus on buying products, working with vendors and expanding the selection for that space."
Amazon was the Top 500 market leader everyone else chased in 2009. But even without Amazon, the remaining Top 500 web-only merchants made a strong showing by growing sales year over year 10.6% to $18.43 billion from $16.66 billion.
More customers, more products
For some online-only retailers such as Netflix Inc. (No. 14) it was a bigger customer base that drove sales in 2009. While rival Blockbuster Inc. (No. 34) increased its online business by 5% last year to an Internet Retailer-estimated $552.7 million and announced plans to close up to 960 under-performing stores, Netflix grew revenue 22.4% to $1.67 billion. Netflix also increased its number of subscribers by 31.6% to 12.36 million from 9.39 million.
Other web-only merchants counted on their expertise in niche merchandising to grow in 2009. In 2005 Diapers.com (No. 85) was a start-up that finished its first year with sales of $2.5 million. But in 2009 Diapers.com used aggressive merchandising and a growing customer base of soon-to-be parents and parents with young families to grow sales 104.5% to $182 million from $89 million in 2008.
Last year Diapers.com expanded its products to include a wider variety of formula, strollers, car seats and clothing. The company also attributed its growing sales to an increasing base of several hundred thousand shoppers and fast fulfillment that includes free overnight shipping to two-thirds of the U.S. and two-day delivery to the rest of the country. "We make life a little easier for new parents," says Diapers.com co-founder and CEO Marc Lore. "That means carrying everything they could possibly need or want, getting it to them faster than anyone else, charging low prices and delivering the best customer service."