By  on May 5, 2009

Welcome to e-tailing Version 2.0.

Growth is slowing, competition online is increasing, and consumers are cutting back online just as they are at the malls.

But all is not doom and gloom. As in the offline world, the strongest e-tailers will survive. Those with unusual and desirable merchandise, good prices, free shipping and a global reach are best poised to weather a shakeout, said merchants and analysts. For brick-and-mortar stores, the Internet still represents an opportunity, while smaller Internet pure plays will be the most challenged because they lack deep pockets and aren’t household names.

Already, children’s wear retailer Parent Co. and contemporary store Active Endeavors shut down earlier this year, and LVMH Moët Hennessy Louis Vuitton’s eLuxury is winding down operations.

Despite these challenges, Web sales are at least still increasing in one of the worst retail environments in decades as more consumers shift their spending to the online channel, said Forrester Research Inc. analyst Sucharita Mulpuru.

“Everyone is cutting back discretionary spending, and apparel is generally viewed as discretionary, so that cannot be helping e-tail or retail in general,” Mulpuru said. “The flip side is everyone is having aggressive sales and discounts, and the fear is these are great deals you can’t miss. That’s what salvaging the business that’s out there to the degree it exists. And you have a larger shift: If anyone is going to be spending, it’s going to the online channel. If you’re going to be spending, there are more people year over year spending online, browsing online, purchasing online.”

According to a report, “The State of Retailing Online 2009: Marketing,” due to come out today from the National Retail Federation and Forrester, online retail in the U.S. in 2009 will increase 11 percent to $156.1 billion, versus 13 percent in 2008 and 18 percent in 2007. Clothing, accessories and footwear will remain the number-one category this year at $27 billion, Forrester predicts.

The firm forecasts online sales in 2010 will accelerate by 13 percent, to $176.9 billion, then slow down again to 8 percent growth to $40.3 billion by 2013.

Profit and Loss

Despite the slowdown, is doing startlingly well and Blue Nile is solid, but not all online pure-play retailers are healthy. Multichannel retailers and big brands have an advantage because they have deep pockets and are trusted and well-known, said Mulpuru, noting Macy’s Inc. and Gap Inc. have reported double-digit growth online for several seasons even as their brick-and-mortar operations suffer in the recession.

Amazon, which includes contemporary retailer Shopbop and shoe store Endless, has grown into a huge powerhouse doing almost $20 billion a year with about $645 million in profit. In the fourth quarter, when some retailers were down more than 20 percent, the company had its best quarter ever and brought in $6.7 billion in revenues, an increase of 18 percent over the same period a year earlier. Net income did not grow as fast as in previous quarters but was up 9 percent to $225 million, some of which was due to the popularity of the Kindle, Amazon’s e-book reader. Gross margin was 20.66 percent.

The company continued to do well this quarter, posting net income of $177 million on net sales of $4.89 billion, an increase of 24 percent and 18 percent, respectively, compared with the same quarter last year.

Shopbop has a new chief executive officer, Jeff Yurcisin. Amazon would not say when he replaced Shopbop founder Bob Lamey nor if Lamey continues in any capacity with the company.

Blue Nile pulled in $300 million in sales last year, and made a profit of $11 million, even though it was down slightly from 2007.

As for other e-tailers, Overstock generated sales of $834 million in 2008, and a small loss of $12,000.

“I always hope for no news because when the news is bad” people panic and no one wants to buy,” said Melissa Payner, president and ceo of Bluefly. “Shopping makes you feel better, even if it’s a little item.”

Bluefly’s customers are spending just as much on individual pieces, but they’re purchasing fewer items per order, Payner said. “Given the promotional environment, I think they’re almost drunk with buying power. Before it was an impulse purchase and now it’s much more considered,” with consumers experimenting with putting things into their cart and taking them out again over a long period, she said.

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