Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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Many successful niche web retailers also survived the recent Great Recession by catering to their best and most loyal customers with a good assortment of merchandise priced to move and a full-featured e-commerce site that made it easy to research, compare and purchase products. "If a niche web retailer survived 2008 and 2009 and put up aggressive growth in 2010, they went into the recession with a good business model and came out of it with a clear understanding of what it takes to keep their best customers coming back, even in the most difficult of economic times," says Okamura. "They hung on and emerged ready to grow again."
Some niche retailers put up big numbers in 2010 because, even in a recession, they saw an opportunity to expand. One such e-retailer is Sustainable Supply Co. (No. 974), which launched in early 2009 and recorded only about $10,000 in sales in its first month in business. The company, which sells environmentally sustainable building supplies and green living products for businesses and homes, had a management team with a business-to-business and retailing background selling maintenance, repair and operations—a category often referred to as MRO—products and services to small companies.
While bigger MRO retailers, such as W.W. Grainger Inc., carried some environmentally sustainable products, Sustainable Supply saw a niche to create a business-to-business e-commerce site that carried nothing but "green" maintenance-related products across 13 merchandising categories, including plumbing, break room and cleaning supplies.
Sustainable Supply grew its inventory from fewer than 10,000 items to more than 100,000 products in just about a year. Having a wider selection helped to generate more sales from companies aiming to be environmentally friendly, says Sustainable Supply chief operating officer Brian Fricano.
That shows up in the retailer's growth. In 2010 web sales for Sustainable Supply grew about 774% to $856,000 from $98,000 in 2009. This year Sustainable Supply plans to add more than 100,000 more products, develop relationships with over 100 suppliers and grow e-commerce sales to as much as $2 million.
The retailer also recently launched another B2B e-commerce site that carries protective eyewear and eye wash products with plans in 2011 to develop another web store featuring tools and hardware. "We developed a niche site that's pretty unique because we didn't see anyone else doing this and bigger MRO operators were only stocking a limited inventory," says Fricano. "We are capturing market share because a lot more small businesses want to keep going green."
Retailers ranked in the Second 500 are well represented across diverse categories. The biggest category is apparel and accessories, which includes 100 merchants that collectively grew their annual e-commerce sales 21.4% to $572.1 million from $471.7 million. The smallest category was pet care with eight merchants and category web sales that increased year over year 6.7% to $30.2 million from $28.3 million.
Even in a category like apparel where retail competition is intense, merchants still spotted openings to develop successful niche sites. Jimmy Jazz Inc. has operated a chain of more than 120 urban fashion stores, mostly along the East Coast, since 1989, but saw an opportunity to launch an e-commerce site in late 2009 right before the holidays.
All that Jazz online
In stores the majority of Jimmy Jazz shoppers are men, but the launch of JimmyJazz.com gave the chain retailer a chance to become a national—and international—brand and attract more women shoppers. In its first year in business, JimmyJazz.com has had to expand its web fulfillment space three times from 5,000 to more than 15,000 square feet. Web sales, which totaled about $4 million in 2010, are expected to reach $13 million in 2011 and $25 million in 2012, says senior vice president of e-commerce and direct marketing David Wachter.
"There was an opportunity to bring more urban fashion apparel to the web, and even though we were later to e-commerce than some competitors we also had an opportunity to survey the landscape, talk to customers to see what they wanted and opened a web store that met their expectations," says Wachter. "We expect at least two more years of triple-digit growth and then solid double-digit increases after that."
Retail chains like Jimmy Jazz were the fastest-growing merchants in the Second 500, with sales that increased year over year 19% to $401.4 million from $337.4 million. The next merchant group in terms of annual gain in e-commerce revenue was web-only merchants, up nearly 18% to $1.40 billion in 2010 from $1.19 billion in 2009.
Across all merchant and merchandise categories, niche web retailers still have plenty of room to grow—if they continue to listen to their customers and pay attention to managing expenses and maximizing profitability, says Okamura.
"The big guys always have to worry about being all things to all people and that can be a big advantage for a niche retailer," says Okamura. "When the big players tell customers 'I can't' or 'I won't,' that's an opportunity for the small web merchant to step in and say 'I do.'"