Surf's Up On Web Shopping

By Leslie Walker
Washington Post Staff Writer
Sunday, July 17, 2005

Las Vegas shoe merchant Zappos.com more than doubled its sales last year to $184 million, upgrading all customers to expedited shipping from the Kentucky warehouse where it stashes 1.7 million pairs of shoes.

"We specialize in service," said founder and chairman Nick Swinmurn.

Zappos is one of many online merchants that sprang to life during the Internet's manic phase six years ago and have hung on long enough to benefit from the fast broadband connections that finally made Internet shopping mainstream.

As Web shopping turns 10 this year, it has grown bigger and more popular than most analysts had predicted. Excluding travel, online sales in the United States grew 24 percent last year, to about $90 billion, accounting for nearly 5 percent of all retail sales, according to the National Retail Federation. Most Internet retailers are profitable, with operating profits rising to 28 percent in 2004 from 21 percent in 2003, according to Shop.org, the online arm of the retail industry group.

Yet Internet commerce is a fast-changing industry that regularly redefines itself, especially as the large, brick-and-mortar chains are marching more aggressively online, doing cross-promotions between their Web sites and stores. Analysts say some of the biggest retail chains have yet to hit their stride online. When they do, it's anyone's guess how that might affect the army of small, specialty retailers such as Batteries.com and BBQGuys.com that use the Internet to offer huge selections to a growing national audience.

"There is an argument going on about whether smaller merchants will continue to proliferate and grow disproportionately or whether you will see big-name, off-line retailers like Wal-Mart, Best Buy and Home Depot compete more effectively online and take over this medium," said Graham Mudd, spokesman for Web analytics firm ComScore Networks.

The heavyweight of Internet retailing is still Amazon.com Inc., a virtual department store that started as an online bookstore in 1995 and today sells stuff in more than 30 categories, including the loose diamonds it added in May. Amazon catapulted to the top not only by simplifying online shopping, but also by recruiting thousands of small merchants to sell on its site and running other sites on behalf of such big merchants as Target Corp. and Borders Group Inc.

Amazon racked up total Internet revenue of nearly $7 billion last year, more than twice the $3.2 million that No. 2 player Dell Inc. sold online in 2004, according to Internet Retailer magazine. The magazine released a list of the top 400 Web retailers last month, awarding the No. 3 ranking to Office Depot Inc., followed by Staples Inc. and Hewlett-Packard Co.'s HP Direct.

Internet Retailer's top 400 offers a rare glimpse of closely held Web sales figures, which the trade magazine obtained directly from most of the 400 merchants profiled. The list shows that sales are distributed fairly widely among various types of retailers. And while big players still outsell peewees, a fat chunk of the total sales is coming through niche sites.

Nine companies had Web sales of more than $1 billion last year. Other than the two big office suppliers, Sears, Roebuck and Co. was the only brick-and-mortar chain to make the $1 billion club. The others were computer and electronics retailers: SonyStyle.com, CDW Corp. and Newegg.com. Nine more merchants racked up Web sales of more than $500 million last year, including off-line giants Best Buy Co., Wal-Mart Stores Inc., J.C. Penney Co., Target and Circuit City Stores Inc., along with Web-only players Overstock.com Inc. and mail-order movie pioneer Netflix Inc., the magazine found.

A total of 75 retailers had online sales exceeding $100 million, and 208 sold more than $20 million. All 400 companies on the list had sales of more than $3 million.

Nobody knows how many retailers are online. But ComScore Networks, which measures Web traffic and sales, reports that more than 1,000 retail sites attracted more than 100,000 visitors apiece last month.


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