November 1, 2011, 12:00 AM

Publisher's Letter: Smaller retailers still prosper online

Smaller retailers still prosper online.

Main streets in smaller cities and towns around the U.S. are a grim sight. Empty storefronts are commonplace, and many of the shops that used to be thriving local department stores, specialty retailers and pharmacies are now barely surviving as used clothing and dollar stores.

Many local store owners just could not compete with big retail chains like Wal-Mart, Best Buy and Walgreens. As retail consolidation advanced in recent years—from 1997 to 2007 the top 50 U.S. merchants' share of retail sales went from just over a quarter to a third, according to the U.S. Department of Commerce—mom-and-pop shops and many regional chains went out of business.

But what's true for store retailing is not true in online retailing, at least not yet.

That was evident from the analysis we did for this month's cover story of the Top 1000 online retailers in North America, examining for the first time together the retailers ranked in our Internet Retailer Top 500 Guide and our Second 500 Guide. Despite Amazon's remarkable growth, it's not the biggest online retailers that are growing the fastest, nor the smallest. Instead, it is web merchants ranked in the 500 to 700 range, with online revenue of between $5 million and $13 million in 2010.

These retailers are taking advantage of the many ways the Internet levels the playing field. In the physical world, scale matters. Big advertising budgets are needed to get out a retailer's name broadly, and only retail chains with many stores can afford that kind of advertising.

But on the Internet consumers primarily search for a product. If you're sensitive to the sun and searching for a sun hat one of the top search engine results will point you to, a manufacturer and online retailer that specializes in sun-protective clothing. A relatively small company like Coolibar, No. 612 in the Top 1000, can leapfrog bigger competitors because Google and Bing don't measure a retailer's ad budget when they rank web sites. Instead, the search engines look for sites that have lots of products and information that relate to the consumer's search and inbound links from the sites of reputable organizations like the Skin Cancer Foundation. Coolibar fits the bill and gets the top spot for many products in its niche.

While attracting consumers to a retail site or store is part of the battle, ongoing success means delivering good products and service. Service is something small retailers have always been good at. But there aren't many independently owned shops left in the physical world whose proprietors can offer personal attention.

Increasingly, it's on the web where consumers can find great service, such as at web-only retailer Gemvara where consumers can design their own jewelry, see renderings of what their pieces will look like as they go along, get recommendations as they design, obtain help from experts in a variety of ways—and return anything they don't like within 30 days. Gemvara, which only launched in March 2010, racked up more than $8 million in sales in less than a year, by Internet Retailer's estimate, to rank No. 605 in the Top 1000. Tellingly, 80% of its customers never bought jewelry online before and 70% say they'll buy from Gemvara again, says CEO Matt Lauzon.

At a time when there are fewer bricks-and-mortar stores than in the recent past, and when the remaining stores have less merchandise and fewer employees, it's on the web that consumers can find good selection and service. And being small or new isn't a major impediment online, as long as you treat the customer right.

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