Small retailers grow steadily online

May 11, 2015 06:00 AM

E-retailers ranked in the all-new Internet Retailer 2015 Second 500 Guide say it’s tougher than ever to succeed in e-commerce.

If Google Inc. decides to tweak its search results ranking algorithm or Facebook Inc. switches up users’ news feeds to favor sponsored posts, it can have a major impact on a small e-retailer’s business and require big adjustments in strategy. Small web retailers also must compete with e-retail behemoths like Inc., W.W. Grainger Inc. and Wal-Mart Stores Inc. that possess strong brand loyalty and seemingly unlimited budgets to invest in aggressive marketing tactics, vast inventory and the latest and greatest technology innovations.

Still, Second 500 merchants managed to collectively grow web sales 14.4% in 2014 to $6.047 billion from $5.284 billion in 2013—that’s slightly below the 15.4% growth in total U.S. e-commerce as measured by the U.S. Commerce Department, and short of the 15.7% growth among the largest web merchants ranked in the 2015 Top 500 Guide.

But it’s four times faster than the 3.5% growth in total U.S. retail sales (excluding fuel and auto sales, restaurants and bars) last year. And a look at the median growth rate of Top 500 merchants and Second 500 merchants shows retailers of the smaller variety fell only slightly behind last year, at 11.5% versus an 11.9% median growth rate in the Top 500.

Moreover, that overall average understates the growth of most of the mid-market players, because the new Second 500 Guide includes 29 web merchants who fell from last year’s Top 500 and grew at an average rate of only 0.2%. Without them dragging down the average growth rate, the rest of the web merchants in the Second 500 grew 16.5%—faster than the overall e-commerce market and the Top 500 retailers leading it.

Second 500 merchants and industry analysts say that for many small businesses selling online the most important goal today is not sales growth, it’s survival. And that may mean steady rather than spectacular growth, and a focus on profits. This year’s Second 500 merchants employ myriad strategies to achieve top- and bottom-line growth, and most center on careful spending choices, and standing out in some way from larger and better-funded competitors.

“When you’re a small business, you’ve got to eat and figure out how to make a profit,” says Sucharita Mulpuru, vice president and principal analyst at Forrester Research Inc. “But that means they can’t the same sell the same product that everyone else does. You need to be hyper-focused on your niche, develop products to support that niche, own them uniquely and use traditional marketing to get the word to help drive those sales.”

There remains, however, a sizeable number of Second 500 merchants like web-only retailer of women’s lingerie, Adore Me (ranked No. 634), that have raised large sums of venture capital funding, which allows them to invest heavily in multiple marketing channels to acquire customers and grow quickly.

Web-only merchants like Adore Me also make up the bulk of the Second 500 and are driving much of the growth. The 289 e-retailers that sell primarily online increased sales 15.6% in 2014 to $3.514 billion from $3.040 billion in 2013. The 86 retail chains fell slightly behind, growing 15.3% to $1.11 billion, followed by the 74 consumer brand manufacturer that collectively boosted sales 11.8% to $821.3 million, and 51 catalog-based merchants, which grew 9.9% to $596.6 million. It was a similar story in the Top 500, with web-only merchants and retail chains increasing their online sales faster than consumer goods manufacturers and retailers that sell through catalogs and TV shopping programs.

Internet Retailer data also shows small online merchants are growing more than just sales—they’re increasing their investments in search, social media and mobile commerce technology.

For one, collectively, Second 500 e-retailers grew their Facebook following by 19.6% to 96.5 million Likes. They also grew their Twitter and Pinterest following by 28.4% to 12.8 million, and 5.7% to 7.3 million, respectively. They have a total of 3.9 million +1s on the Google+ social network, and 8.7 million Instagram followers. Year-over-year figures were not available for Instagram and Google+.

Also, 283 Second 500 merchants now operate mobile-optimized websites, a 12.7% jump from 251 merchants ranked in the 2014 edition of the Second 500 Guide.

They also increased their investment in paid search last year, as they collectively spent about $14.43 million per month in advertisements on search engine results pages, up 3.5% from $13.94 million in 2013.

The 2015 Second 500 Data is available in three formats and four buying options:

  • Printed Edition for $99 (Early-Bird Price)
  • Digital Edition for $99 (Early-Bird Price)
  • Print and Digital Bundle for $160 (20% savings)
  • Online Database for $289 for a year (Receive all data metrics)



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