June 3, 2013, 12:28 PM

Constant change

A decade's worth of Internet Retailer research data reveal that while some Top 500 Guide merchants come and go, innovation keeps the leaders sticking around.

Lead Photo

A decade ago, when Internet Retailer first ranked North America's retailers by their online sales, e-commerce was an emerging sales channel. Today it's mainstream, and the most powerful driver of retail growth. But one thing remains the same: E-commerce is still rapidly evolving, and the retailers that adapt to change most quickly and effectively are the ones making gains.

In 2012, the combined sales of the Top 500 retailers grew 17.5% year over year to $216.17 billion from $183.93 billion, while total e-commerce as measured by the U.S. Department of Commerce increased about 15.8% to $225.50 billion last year from $194.70 billion in 2011. By contrast, total retail sales grew only about 4.0% to $3.09 trillion in 2012 from $2.97 trillion in 2011. While e-commerce represented only 7.3% of total U.S. retail sales in 2012, it accounted for 25.4% of the growth.

Innovation is the watchword for retailers seeking to ride the e-commerce growth wave. And that's true whether they are perennial Top 500 merchants such as Amazon.com Inc. (No. 1), FragranceNet.com Inc. (No. 153), Oriental Trading Co. Inc. (No. 86), Fanatics Inc. (No. 43), or newcomers such as Groupon Inc. (No. 65), the fastest-growing web merchant ranked in the 2013 Top 500 Guide with sales that increased nearly 2100% to $454.7 million in 2012 from $20.8 million in 2011. These retailers' growth strategies include diversifying their e-commerce operations with new merchandise and product categories and digging even deeper into the details of web analytics, web site traffic logs and other data to gain nuggets that will lead to better understanding of customer behavior—and surpassing expectations.

They're also mastering how to maximize customer acquisition and sales from new opportunities in mobile commerce and social media. "This isn't the same market we all knew 10 years ago, and the changes in technology, marketing and customer expectations are coming faster than I've ever known," says Sam Taylor, CEO of Oriental Trading, an 81-year-old direct marketing company that today uses the Internet and e-commerce to drive about 70% of its sales. "If we aren't willing to change and keep up with innovation someone else will."

Not every retailer made the right choices when faced with the rapid changes of the past decade. Many well-known retail brands that at one time made the Top 500 rankings have since gone bankrupt, were sold or went out of business for other reasons. A prime example is Circuit City Stores Inc., which reached $1 billion in web sales in 2007 but was bankrupt by 2009, the victim of a flawed discount pricing strategy and stiff competition from Best Buy Co. Inc., Amazon and others.

Meanwhile, some e-commerce brands that struggled on their own, such as RedEnvelope.com, have been revived under new ownership. "A lot of online retailers that aren't around anymore may have had a good run for awhile, but in the end the value proposition they offered shoppers just wasn't good enough," says Jim Okamura, managing partner of retail consultancy Okamura Consulting. (See the Memory Lane chart on page 46 for more details.)

Today the Top 500 retailers growing the fastest are the merchants that are flexible and willing to embrace change, especially new developments in mobile commerce and social media, Okamura says. "The Top 500 retailers growing the most consistently over the next 10 years of online retailing will be the merchants really mastering these two channels."

Many leading e-retailers recognize the opportunity in mobile commerce. In 2012, 322 Top 500 merchants operated a mobile commerce site or app compared with 135 in 2011 and 76 in 2010.

But some Top 500 retailers are embracing mobile commerce more aggressively than others and gaining shoppers—and sales—as a result. RueLaLa.com (No. 76), which sells designer fashion for a limited time to registered shoppers, generated 16.9%—$67.5 million—of its overall 2012 e-commerce sales of $399.9 million from mobile commerce. For ShopNBC.com (No. 98) mobile sales reached $60.0 million in 2012, accounting for 22.4% of its $268.2 million e-commerce sales. Flash-sale site Fab.com (No. 150) brought in roughly $45.0 million in mobile sales last year—30% of its Internet Retailer-estimated total of $150.0 million.

Mobile commerce is especially suited for private-sale sites such as RueLaLa.com because deals sell out quickly, and members rely on their smartphones and tablets to snag time-sensitive offers. And RueLaLa.com strives to keep up with the latest developments in mobile commerce technology because its shoppers want to do a lot more with their mobile devices than just receive promotions and buy, says founder Ben Fischman.

Recognizing that mobile shoppers want to see, search and size apparel, RueLaLa.com released new mobile apps prior to the 2012 holiday shopping season that let shoppers quickly determine the availability of desired sizes and colors. Another new feature, a "Right Now" screen, shows shoppers which items have sold out or are close to selling out, without having to navigate off the home screen. "It is our mantra to make certain that we are moving as quickly as our members when it comes to technology," Fischman says.

Flexibility and adaptability are also important when it comes to social commerce, which some Top 500 retailers are embracing more quickly—and successfully—than others. A decade ago there were no social metrics in the Internet Retailer Top 300 Guide because online social networks had yet to become a mass phenomenon. In 2003 Facebook CEO Mark Zuckerberg was a Harvard student a year away from writing the code that would become Facebook; Twitter did not launch until March 2006.

But in 2012 and today virtually all Top 500 retailers reach out to consumers via social media: 99.2%, 496 retailers, have a Facebook page; 97.2%, 486 merchants, operate on Twitter; 88.0%, 440 retailers, have a YouTube channel; and 78.0%, 390 merchants, are on Pinterest. Between 2011 and 2012, the combined number of Top 500 Facebook Likes grew 28.1% to 477.5 million from 372.9 million, while the collective number of Twitter followers increased 84.4% to 34.3 million from 18.6 million.

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