Internet and catalog sales are becoming increasingly important
for some of the major specialty retailers covered by Trefis.
Retailers realize higher profit margins on such direct-to-consumer
sales than on merchandise sold in physical stores.
Internet and catalog sales constitute about 17% of the
$34 Trefis stock price estimate for Gap Stores
). They constitute
32% of our $42 price estimate for J.Crew
24% of our $40 estimate for Urban Outfitters
), and 26% of our $26 American Eagle estimate (
). Our analysis follows below.
Gap leads the pack
In dollar terms, Gap is the leading specialty retailer in our
coverage group when it comes to Internet sales, which it combines
with franchise sales for reporting purposes. Gap's Internet and
franchise sales grew from $0.6 billion in 2005 to $1.3 billion in
We expect sales through these channels to grow steadily in
coming years, nearing $2.5 billion by the end of the Trefis
forecast period. You can drag the trend-line in the chart below to
create your own Internet and franchise sales forecast for Gap and
see how it impacts the company's estimated stock price.
Torrid growth for American Eagle
American Eagle has posted the highest Internet and catalog
revenue growth rates in its class. American Eagle's
direct-to-consumer sales increased from $120 million in 2005 to
$350 million in 2009, an annual growth rate of 30%.
Next comes Urban Outfittters, whose Internet and catalog sales
grew at an annual rate of 25% over the same period, from $130
million in 2005 to $320 million in 2009. Gap and Abercrombie &
) both posted 20% annual growth rates in direct-to-consumer sales,
followed by J.Crew at around 15%.
The next two charts show our Internet and catalog sales
forecasts for American Eagle and Urban Outfitters, respectively.
You can drag the trend-lines to create your own forecasts and stock
price estimates for both companies.
J.Crew leads in proportional direct sales
Among the specialty retailers that we cover, J. Crew reports the
highest percentage contribution of Internet and catalog revenues to
total revenues. J. Crew's direct-to-consumer revenues grew
from $280 million in 2005 to $470 million in 2009, or 30% of
By comparison, Urban Outfitters derives about 18% of total
revenues from Internet and catalog sales, versus 8% to 12% at Gap,
Abercrombie & Fitch and American Eagle.
Internet and catalog sales are proportionally more important for
J.Crew because it started out as a direct-to-consumer player and
only later entered the brick-and-mortar retail business. Its
competitors all started as brick-and-mortar retailers and and then
diversified into the direct-to-consumer business.
You can drag the trend-line in the chart below to create your
own Internet and catalog sales forecast for J. Crew and see how it
impacts the company's estimated share value.
Going forward, we expect Internet and catalog sales to become
increasingly important for the specialty retailers that we
cover. We expect established direct-to-consumer players like
Gap and J.Crew to post Internet and catalog revenue growth rates of
7% to 10% during the Trefis forecast period. We expect
direct-to-consumer growth rates of around 15% for newer entrants
like American Eagle and Urban Outfitters.
Specialty retailers are increasingly crafting online marketing
campaigns designed to capture traffic from popular social
networking services like Facebook and Twitter. The campaigns
are working: In 2009, the number of unique visitors to the
e-commerce sites of specialty retailers that we cover increased at
a monthly rate of 5% to 10%.
Due to increasing competition in in the direct-to-consumer
segment, retailers must continually accelerate their
turnaround times, broaden their inventories and improve their
customers service. As a result, most have been upgraded the
technology and back-office systems that support their
direct-to-consumer sales operations.
For example, Urban Outfitters has rolled out interactive
shopping tools from Allurent in an effort to provide a better
online retail experience for its customers.
You can see
the complete $34 Trefis stock price estimate for Gap Stores
You can see
the complete $42 Trefis stock price estimate for J.Crew here.
You can see
the complete $40 Trefis stock price estimate for Urban Outfitters
You can see
the complete $26 Trefis stock price estimate for
American Eagle here.