Web-based retail in 2012 could be characterized as "Revenge of
Competition is heating up in the space, and the pressure isn't
just coming from Web stalwarts.
Department store chainsNordstrom (
) and others are making a significant push to challenge digital
natives likeAmazon.com (
) andeBay (
) for a bigger share of the multibillion dollar e-commerce
They're going where the action is. Internet sales are a
fraction of overall retail sales, but they continue to outpace
the growth of the broad industry.
Nordstrom has committed $1 billion over the next five years to
spruce up its online operations. Target is also retooling its Web
Meanwhile, second-quarter online sales for Macys.com and
Bloomingdales.com increased 36% from a year ago as Macy's boosts
its online operations.
After years of stumbling, physical stores are launching more
aggressive online game plans to better appeal to cyber shoppers,
says Jessica O'Brien, an analyst for research firm Gartner.
"They want to be able to leverage their stores, leverage a
single inventory pool and just have more flexibility in their
supply chain in order to compete with people like Amazon," she
Traditional retailers have to adopt a winning Internet formula
or risk losing sales, says Shawn Milne, an analyst for Janney
"Consumers just want better selection, better pricing and
convenience," he said.
Online retailers have often been able to provide exactly that,
and overall they've continued to prosper this year. IBD's
Internet retail group ranked No. 28 out of 197 groups as of
Haves And Have-Nots
E-commerce, the act of selling goods and services online, is
practically synonymous with the Internet. But not all of the 22
companies in IBD's Internet retail group compete on the same Web
Amazon is the Web's top online retailer, while eBay is the
Internet's leading auctioneer and platform for helping businesses
and consumers sell goods online.
Other top players in the sector serve more niche markets.
Argentina-basedMercadoLibre (MELI) is the leading e-commerce
player in Latin America and partly owned by eBay.Liquidity
Services (LQDT) helps companies sell returned goods and excess
CafePress (PRSS), a thinly traded microcap, sells topical
T-shirts and related items produced by the company and other
vendors. Another company,Groupon (GRPN), is the leader in daily
deals -- limited-time discounts on goods and services sold to
Most are growth companies. Amazon's revenue gains in the last
four quarters have ranged between 44% and 29%, although a
spending spree has led to profit declines.
Liquidity's sales growth has ramped up from 13% to 46% in the
same time frame, while eBay's has ranged between 32% and 23%.
MercadoLibre's revenue growth has come in between 46% and 28%
over the past four quarters.
But Groupon, while still growing, has seen its revenue gains
decelerate from 426% to 45% over the last four quarters. The
daily deals pioneer, along with most of the names in the
22-member industry group, trades under $10 a share. Many
institutions won't buy stocks unless they're above that
E-commerce is a market of haves and have-nots, says Janney's
"The market is very strong. Within that there are very
disparate performances in the Internet retail group," he said.
"Everything is not created equal."
Growing But Deceleration Seen
E-commerce overall continues to thrive. Global sales of goods
and services on the Web will reach $1.3 trillion in 2015, up from
$0.8 trillion last year, researcher IDC says.
U.S. e-commerce is also growing. By 2015, online sales to
consumers in the U.S. will hit $354 billion, up from $245 billion
in 2011, IDC says.
But unlike the global picture, annual e-commerce growth in the
U.S. is expected to decelerate from 11% this year to 8.2% by
In Q2 online sales in the U.S. grew by 15% vs. the year-ago
period, slowing down a little from 17% year-over-year growth in
Q1, says ComScore, another research firm.
ComScore cited the weak economy as the top reason for the
slowdown. But Greg Girard, an IDC analyst, says it's a
"It's because online retail is coming up against the intrinsic
value of the store, which it can't replicate," he said. "The
store is a social place. It's multisensory, it's interactive,
which online retailing is not."
Other Internet retail markets are flourishing. E-commerce grew
in Latin America by 43% to $43 billion in 2011, says
AmericaEconomia Intelligence and Visa.
Niche markets could also be a boon for some e-commerce
players. Millions of small businesses in the U.S. provide a
promising opportunity forStamps.com (STMP), which sells U.S.
postage online, says Craig-Hallum Capital analyst George
"If you look at the online penetration, meaning someone using
a service like Stamps.com, we are still in the early-adoption
phase," he said.
Taxing Like Regular Stores
Sales taxes will also become an issue for Internet retail.
Congress is considering several bills that would require online
retailers to collect sales taxes. That could amount to $20
Internet retailers have avoided collecting sales tax by
relying on a 20-year-old Supreme Court ruling concerning
mail-order merchants. The court exempted mail-order merchants
from collecting sales tax on transactions in states where they
don't have a physical presence.
Amazon's aggressive warehouse expansion plan has helped reduce
that defense. It collects taxes on its sales in six states and
plans to add California and Pennsylvania this month.
It's unclear whether a Web sales tax mandate would be
detrimental to Amazon and a boon for physical stores, says
"I don't know if the sales tax is going to drive a ton of
business back into stores, but it might give the (physical)
retailer a little bit more of an advantage," she said.
Go Mobile Or Else
Mobile devices are one of the biggest concerns for online
retailers. In Q2, global tablet shipments reached 24.9 million
vs. 14.9 million in the year-ago period. Smartphone shipments in
the U.S. in Q2 reached 23.8 million, down 5% from a year ago,
says Strategy Analytics, a research firm.
Amazon and several online and offline retailers have jumped on
the mobile bandwagon. Many offer mobile versions of their
websites to stay in step with shoppers wanting to compare
products and prices on the go, says Janney's Milne.
"They are no longer tethered to a PC, and they are no longer
tethered to shop while they are at work," he said. "It's just
providing a better convenience option for consumers."
EBay is working on improving its core Marketplace business to
make it more competitive with Amazon's own third-party seller
business. EBay's mobile program and its acquisition of Web
services company GSI Commerce last year are helping, says Nick
Landell-Mills, an analyst for Indigo Equity Research in a July 21
"Marketplaces have been boosted by the GSI acquisition, better
website experience, more fixed price sales, increased focus on
selling new goods, better advertising and mobile commerce," he
Outlook: It's Complicated
Online retail is growing. But the percentage increases are
slowing as the market matures. The economy is also making
consumers more concerned about scoring the best price and free
Amazon continues to push into new areas of growth with its
cloud-based computing business that allows consumers and
businesses to store and access data on the Internet. The
e-commerce king also continues to beef up its streaming video
business with content partners such asCBS (CBS). Plus on
Thursday, it unveiled new Kindle e-readers and tablets, which
boost buying of e-books and movies.
An uneven economy might be good news for Liquidity Services,
which thrives on handling returns for large retailers, says
Janney's Milne. "You are talking about retail returns in the
U.S., which are somewhere between a $60 billion and $100 billion
opportunity for them," he said.
But economic woes continue to pressure the industry. In July,
CafePress lowered revenue guidance for 2012 to between $208
million and $217 million, up 19% to 24% from last year. In May it
had expected annual growth of 27% to 35%. Europe continues to be
soft. The presidential election also isn't producing as expected,
"People are just not buying the Obama T-shirts and Romney
T-shirts that was nearly expected," he said.
The growth of goods sold on MercadoLibre could be challenged
in the near-term, says Mark Miller, an analyst for William Blair
in an Aug. 3 report.
"We expect local-currency (gross merchandise value) growth
will continue to decelerate as the company laps difficult
year-over-year comparisons and as economic growth has slowed in
Latin America," he wrote.
Groupon also has growing pains, Milne says.
"The problem is the daily deal business looks like it's tapped
out a bit," he said. "The growth now is coming from the Groupon
goods business, and it's difficult to see whether they are going
to be able to scale that business up."