Last year was a watershed moment for apparel online.
Apparel sales moved into the top spot online for the first time in 2006, overtaking computers but excluding travel, according to a report due to be released today from the National Retail Federation.
Last year, online sales of apparel, accessories and footwear grew 61 percent compared with the year before, according to the report. Forrester Research Inc., which conducted the study, projects growth will slow down this year to 21 percent. In 2006, Web sales of apparel, accessories and footwear reached $18.3 billion, and are expected to grow to $22.1 billion this year.
Retailers and analysts predict massive growth in online revenues in the category in the next five years. At the same time, competition is increasing and requirements to succeed are changing rapidly.
If the first decade of e-commerce belonged to the pure plays and the innovators, the second decade may well turn out to be the era of the established brands — particularly those with brick-and-mortar stores and deep pockets to keep up with the latest technologies to enhance the customer experience.
It's not enough to throw up a pretty Web site anymore, said Brendan Hoffman, president and chief executive officer of Neiman Marcus Direct. "You need proper customer care 24/7, phone calls, live chat."
Even though the pie is getting bigger, "there could be a shakeout for other reasons," said Rich Last, director of new business development for jcp.com at J.C. Penney and a member of the NRF's Shop.org board, which commissioned the study from Forrester. "This is such a quickly evolving business, you really have to stay ahead of it and on top of it — not just putting up a Web site, but continually improving and investing in it. Some will be better than others at it."
Established online players — including specialty sites such as Neiman Marcus and Net-a-porter, and department stores such as J.C. Penney and Macy's — report robust profits and growth rates of 20 to 70 percent in their online businesses.
Key reasons for the growth of apparel, accessories and footwear online are new sites, liberal shipping policies and rich imaging, according to Forrester.High-speed broadband access at home is now common. At the same time, the ability to offer zoom and multiple views became de rigueur last year, with many luxury and department store retailers adding them to their sites for the first time.
"Customers have better monitors and views of the product," said Last. "That may not make a big difference in the selling of books, computers and travel reservations online, but for selling apparel and home products, they are significant factors, so I think we're about to see a whole other wave occur."
The overtaking of computers and software represents a significant shift.
"If you were looking for a sign [shopping for apparel online] has become mainstream, this is the sign," said Scott Silverman, executive director of Shop.org. "It's not a technology thing anymore. It's really something the general population is taking part in."
"It's a huge market," said Shopbop ceo Bob Lamey, whose online-only contemporary shop flew under the radar until its sale last year to Amazon.com. "I think for all online retailers, there is still a tremendous amount of tailwind behind the business."
Although Madison, Wis.-based Shopbop does not break out financials, Lamey said the business is "very profitable" and its growth rate is in the high double digits. A former options trader who briefly owned an outdoor store, Lamey opened Shopbop in 1999 and the business became profitable in 2002.
Another established online pure play that's doing well is Net-a-porter. The company has not released earnings for 2006, but founder Natalie Massenet said sales were up more than 70 percent last year. Profits before taxes also grew, despite the cost of expanding its U.S. operations with a distribution center here, she added. In 2005, the company's revenues reached 21.3 million pounds, or $40.5 million.
Federated Department Stores also experienced impressive growth in its online business, which was up 38 percent to $620 million in 2006 from $450 million the year before. A major factor in its growth was the acquisition of May Department Stores, which took Federated and its Macy's nameplate into new geographical markets and propelled new customers to the Web site, said a Federated spokesman.Saks Fifth Avenue also did well, with a growth rate of about 35 percent, said Denise Incandela, senior vice president of Saks Direct. Last year, the company changed its online assortment and bought broad and deep in designer ready-to-wear, handbags, shoes and contemporary. The last three are "our biggest groups and the drivers of the business," said Incandela. The company also added product detail pages with richer imaging and keeps working to improve customer service and editorial.
"The pie is continuing to grow," said Incandela. "Retailers are investing in the business in a big way because the opportunity is significant. That's good for all of us, because as more customers are shopping online, the pie is getting bigger. We are attracting new customers, and repeat customers are spending more."
The strong numbers turned in by these retailers are not surprising, given the overall growth rate for apparel online. Nonetheless, there remains plenty of room for more apparel sales to shift online. For instance, 41 percent of all computers and software sales take place online, whereas only 8 percent of apparel, accessories and footwear do, said Forrester. Online sales of apparel are projected to reach 10 percent of all apparel sales this year, according to the firm.
Footwear and contemporary are two key categories that have experienced major growth and increased competition last year. Industry pioneer Girlshop closed its doors, while dozens of small brick-and-mortar boutiques offering little-known designers went online and Shopbop offered everyday free shipping after Amazon acquired it. Free shipping is now standard in footwear, noted the NRF report, and shoe stores that opened online in 2006 include Amazon's Endless, Gap's PiperLime and eBags' 6pm.com.
Retailers are always looking for ways to make the shopping experience more interactive. A surprising number of them are already adding next-generation technologies (loosely known as Web 2.0), which include video and user-generated content such as customer-written product reviews, blogs and profiles and social networking. Amazon has been the undisputed leader in this area in its book business, but apparel retailers are not far behind. For instance, Macys.com added user reviews in September, and since then more than 50,000 reviews have been posted, with an average of 225 going up a day. They add a lot of value and credibility to the site, and let customers know if something runs big or small and inform merchants if there is a problem, said the Federated spokesman.J.C. Penney has been online since 1990, and is moving forward with new technologies to enhance the customer experience at its $1.3 billion site. The retailer plans to add social networking, user reviews, and video this year, said Last. The department store last year added the ability to look up merchandise at local stores online, an achievement for a department store, whose many legacy systems and departments are usually too sprawling to integrate. The company also completed its rollout of Internet-enabled point-of-sale systems last year, to assist sales of bras and locate products.
Neiman Marcus has also been considering how to add interactivity to its site, and plans to add video to its virtual trunk shows this season and is mulling live chat with designers and store executives.
"Potentially, there's a lot of value with that," said Hoffman. "It just has be done within the Neiman Marcus experience."
The retailer rang up online sales of $400 million in fiscal 2006, ended in July. A big reason for its booming business is being able to extend its brand to customers who live outside its store areas, said Hoffman.
Online stores are driving a huge amount of business to brick-and-mortar stores, said Patti Freeman Evans, retail analyst with Jupiter Research. "The retailers who can capture that customer have an opportunity to grow their business."
Having brick-and-mortar stores gives customers the ability to return items that don't fit, and reduces marketing costs.
Web purveyor Bluefly cited marketing costs as a factor in its continued losses, reported this week. Its revenues grew 31 percent to $77.1 million in 2006, but the cost of marketing and executive bonuses resulted in a loss of $12.1 million for the year.
"If we were a store, we could count on people walking by, but it's a pull site, so you have to continue to invest in a marketing campaign to let [people] know you're there," said Melissa Payner, president and ceo of Bluefly.
Nonetheless, having brick-and-mortar stores is no guarantee of success, said Lauren Freedman, president of consulting company the e-tailing group. "In a year's time, the merchandising requirements for any one category can change. Also, there's a cost associated with that." The bar moves very quickly, she said, adding, "But at the end of the day, fashion is a large category and the only way is up."
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