Water Garden | Know Thy Customer
The U.S. online retail market is big, getting bigger and increasingly dominated by the largest web merchants. But even in an industry where Amazon.com Inc. alone accounted for 20.7%-$34.2 billion-of all U.S. e-commerce sales of $165.4 billion in 2010 and the top 100 retailers, including Amazon, ranked in the Top 500 Guide accounted for 78.2%, or $129.4 billion, there’s still of plenty room for highly specialized niche retailers to grow and prosper.
At the top end of the e-commerce market, the biggest companies continue to increase their market share through a mix of organic growth, expanding into new categories and geographies, and by acquisition. In late 2010, Amazon broadened its reach by announcing plans to acquire Quidsi Inc., parent company of Diapers.com, for about $500 million. The deal, which closed in April 2011, added about $300 million in sales on the top line to Amazon and gave the world’s biggest retailer a strong base in the fast-growing niche market of e-commerce sites focused on mothers and young families.
But while Amazon and other big e-commerce players grow from the top down, there’s a strong group of up-and-coming smaller niche web merchants gaining sales and customers from the ground up. And these smaller entrepreneurial upstarts make up a big part of the 500 online retailers profiled in Internet Retailer’s Second 500 Guide , a newly released companion to the Internet Retailer Top 500 Guide. Like the Top 500 Guide, the Second 500 ranks North American retailers by their online sales, and the companies in the Second 500 generated 2010 web sales of up to $13 million. More importantly, they’re growing, with their combined web sales increasing 16.5% to $2.47 billion from $2.12 billion in 2009.
In fact, almost all of the companies in the Second 500 are growing. Of the 286 web-only merchants, 90 consumer brand manufacturers, 81 chain retailers and 43 catalog companies ranked in the guide, 93.4%-467-posted an increase in sales in 2010, including 22.3% that met or exceeded the 2010 growth rate of 14.8% for all U.S. e-commerce sales and 20.1% that met or exceeded the collective annual growth rate of 16.5% of the Second 500.
And it wasn’t necessarily the biggest retailers in the Second 500 growing the fastest. Retailers ranked 501 to 600 increased their combined sales year over year about 16.2% to $1.04 billion from $893.8 million. But it was retailers numbered 601 to 700 that grew the fastest, increasing their collective web sales 20.9% to $670.6 million in 2010 from $554.5 million in 2009. In comparison retailers ranked 701 to 800 grew year over year almost 13% to $407.2 million from $361.0 million and merchants numbered 801 to 900 increased 13.7% to $241.6 million from $212.5 million. The final segment-Second 500 retailers ranked 901 to 1000-had collective web sales of $112 million in 2010, an increase of 14.6% from $97.8 million in 2009.
Secrets of success
Many smaller Second 500 web merchants
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