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In the three years since failed so spectacularly, a pall has descended over the notion of selling apparel online. But that hasn’t stopped specialty stores, cataloguers, and certain department stores, which already had the infrastructure in place, from quietly going about their business. In the last three years, these retailers have proven that selling clothes over the Web is an important and profitable business.

Last year, online sales of apparel and accessories reached $10.2 billion, and the category is expected to ring up sales of $11.6 billion by the end of this year, according to an annual study conducted by Forrester Research for, the association for online merchants. More important, close to 80 percent of online retailers (in all categories) showed a profit last year, up from 70 percent in 2002.

“Online retailing has arrived as a profit engine with double-digit operating margins,” said chairman Elaine Rubin in a prepared statement.

The success of so many big names in the online apparel game — from Lands’ End to J.C. Penney to Neiman Marcus — has changed the view of online stores, as well as their role in the apparel industry. As the business becomes more established, offline retailers are realizing not only that the Internet is a significant sales channel that makes an important contribution to the bottom line, but also that it is crucial for brand marketing and for driving sales to physical stores. In particular, customers are using the Web to “preshop,” a new behavior in the apparel industry that involves using the Internet to check out trends and what’s available at a variety of stores online, plan a wardrobe and shopping trips, prioritize spending and then actually go to the stores in person to feel and try on merchandise.

“Chief executive officers of apparel retailers take the Web very seriously,” said Marshal Cohen, chief industry analyst at the NPD Group of Port Washington, N.Y. “They look at it as another mode of business which offers the opportunity to expand into a wider range of products and opportunities, as well as one that’s an entity unto its own — meaning it has its own idiosyncracies, and running it requires a whole other set of knowledge. Online is in most cases as big if not bigger than any individual store’s performance.”

This story first appeared in the September 1, 2004 issue of WWD. Subscribe Today.

Lauren Freedman, president of the e-tailing group inc., of Chicago, concurred. “Most merchants, whether they’re deep or not deep in it, know that there’s a lot of opportunity online with apparel, because it’s such a big business to begin with,” she said. “So if they do 10 to 15 percent of revenue, that’s still significant dollars.”

Not surprisingly, there has been an uptick in e-commerce launches in the past several months, although Freedman said she believed it was a coincidence more than a trend. Liz Claiborne Inc., for example, which has sold its Elisabeth plus-size line over the Web for some time now, launched an e-commerce site for its flagship brand in March. The site offers women’s, men’s, boys, home, accessories, fragrance and golfwear.

Wal-Mart relaunched apparel on its gigantic site after a three-year hiatus in time for back-to-school, while Target emphasizes its designer clothing lines like Mossimo and Liz Lange on its Web site. And Neiman Marcus Direct brought e-commerce to Bergdorf Goodman late last month. The influx of such big-name retailers and manufacturers, particularly Wal-Mart, will inject the channel with substantial volume and revenue growth, said Cohen.

Specialty retailers say they are committed to the Internet.

“E-commerce is one of the highest priorities the Neiman Marcus Group has,” said Burt Tansky, president and chief executive officer of Neiman Marcus, in an e-mail. The company’s Web businesses have been highly profitable for two years, said Brendan Hoffman, president and ceo of Neiman Marcus Direct. His group, which includes the Neiman Marcus catalogue, Horchow and Chef, is expected to bring in sales of $200 million this year. In addition, he said that he expects the Neiman Marcus Web site to become the retailer’s largest single store this year.

The launch of the Bergdorf Goodman online store has long been in the Neiman Marcus Group’s sights, but the company chose to first concentrate on its businesses that already had more of a direct component and an infrastructure for shipping straight to customers in place.

The multichannel approach has worked well for the company, with the Web sites helping to grow businesses in the catalogues and the physical stores. In addition, the Web sites have helped extend the retailer’s geographical reach. More than half of’s business comes from outside the store’s trading area, for example. “It’s an incredible vehicle for us to reach out to people who otherwise would not have access to a Neiman Marcus store,” said Hoffman. “We like to tell them that now they have [one].”

The business model and merchandising are very different from a physical store, and so are not easy to compare, he said. Nonetheless, it is true that although online stores require a huge initial investment, they have many fixed costs that can be leveraged once a store reaches a certain size, he said.

Initially, there was a notion among online retailers that they were unlimited in size potential and could show as much merchandise as they wanted because they weren’t constrained by four walls, Hoffman said. “We’ve learned that that can be a disservice to the customer. It makes it hard to navigate the site. One thing we pride ourselves on at Neiman Marcus is being tremendous editors,” he said.

The company has also learned that technology is not always a good thing. Neiman Marcus has moved away from the flash and glitz that were popular in the dot-com years. “Anything we can do to make the shopping experience easy for the customer has helped,” Hoffman said. “What we realized is that the customer wants to be able to shop and see product and make a purchase without too much interference.”

Neiman Marcus’ efforts on the tech side have concentrated, and continue to do so, on raising conversion rates. For example, one recent initiative has focused on recognizing the customer and what sections they typically shop in, and bringing them there sooner. So, for example, if a customer who typically buys shoes logs on, Neiman Marcus will show that customer a home page that highlights shoes, Hoffman said. “We liken it to a physical store, which has lots of entrances, so you can park close to the part of the store you want to shop in,” he said.

At Urban Outfitters Inc., the direct business is profitable and accounts for about 15 percent of company’s revenue. The direct division consists of e-commerce sites and catalogues for both Anthropologie and Urban Outfitters. The company is launching an e-commerce site for its Free People label this fall.

The Web sites make a significant contribution to the company’s overall revenue, and they’ve also been an important driver of offline sales, according to Chris DeWitt, managing director for Urban Outfitters’ direct business. (He oversees Urban’s portion of it and the forthcoming Free People site, not Anthropologie.)

“We’re not a chain that can be on every corner of the country, we have a relatively defined customer group that’s obviously a niche customer, and the Web site allows us to fill in and around and between stores and gives us total coverage for the concept,” he said.

The synergy between Web, catalogue and store has been significant. For instance, after a catalogue drop, traffic in stores in the area increases. Conversely, the company’s Web and catalogue business is strongest in areas where it has physical stores.

“People have a browsing period and a buying period, and we find they browse through all three channels and then buy,” said DeWitt.

Most surprisingly, the Web site has helped build awareness of the retailer, so when a store opens in a new area, there is a line of people outside waiting to shop. “We’re a small brand, and in the past, it took time for us to build up store traffic,” said DeWitt. “No one knew who we were in a new market.”

The Web is now taken more seriously in other parts of the company than in the past, he said. “Obviously, as you grow in size and as a percent of the total business, [that will happen],” said DeWitt. “I think the total organization now sees that what we put in an e-mail or a catalogue affects overall sales. And having customers waiting [outside a new store] based on the Web site really brings that understanding in the total business that we’re not just a sales channel, but a very important marketing component.”

Urban Outfitters took a different approach to its online store than most, purposefully downplaying technology rather than letting it drive decisions, he said. “When we started four years ago, there were a lot of assumptions about what you had to have, such as Flash, spinning models and Zoom. It didn’t really make sense for what our brand was. We’re learning that we’re not that different from a store — you really have to have a feel for what the customer wants and give it to them. You can’t let what’s possible technology-wise drive your Web site,” he said.

To that end, the company has focused on making its Web site graphic and fun rather than sterile. All the clothes are shot on people, and the same shirt in three different colors will often be accessorized in dramatically different ways. “For Urban, part of the fun is putting together unique combinations of the product,” said DeWitt. “We don’t have a formula or a must-buy outfit each season. We can show lots of different outfits and ways to wear things, and how they fit on the body. It gives the site personality, as well as a relatively low return rate.” (The return rate is “significantly” less than 15 percent, he said.) According to Catalog Age magazine, return rates for fashion merchandise range from 25 to 40 percent.

The company’s physical stores carry assortments tailored to their markets, such as college or big-city or a certain volume. Likewise, the Web site also has its own mix. “We don’t have the same constraints a store does. When you have a category that really works, you can expand it quickly and [penetrate] it. You can be flexible and can react quickly to the customer,” DeWitt explained.

The Web site carries slightly more branded product than the stores, with slightly higher average retail prices. “We do better with more special, unique and high-end products, such as shoes, furniture and bedding,” DeWitt said. The business model is similar to that of the stores, which is a choice they’ve made, he said. “It all depends on how much you want to invest back into it,” he explained.

Gap Inc. Direct is profitable, and Gap Inc. is strongly committed to e-commerce, said spokeswoman Jordan Benjamin. The company’s Web sites make an important contribution to sales, drive traffic to the stores and are key to the company’s brand marketing efforts, she said.

Gap’s research has found that customers use its Web sites to preshop. “Say they’re looking for a cord blazer. So they’ll look to see what Gap has, and they’ll say, ‘Yes, they’ve got a great patterned one and a colored one, let me go to the store to try it on,’” she said. “They like browsing the [online] store on their lunch break at work.”

The company has used its three Web sites to test new categories before putting them in stores, such as maternity and petites. It offers extended sizes through its Web sites, such as men’s tall sizes at Banana Republic and plus sizes at Old Navy, which are also available at 50 of the chain’s 810 U.S. stores.

Echoing Urban Outfitters’ DeWitt, Benjamin said the Internet gives Gap an opportunity to show customers how to wear items and put together outfits. The company went all-out with this concept for fall, announcing the arrival of new styles at Banana Republic with an online fashion show and putting up a separate Web site called for Gap. offers styling tips illustrated by Sarah Jessica Parker and musician Lenny Kravitz, as well as a spot where customers can upload their photo and a style profile. The site also announces a tour, which concludes at the end of this month, of Gap stylists and photographers, who will customize jeans and shoot Gap ad-like photos of customers in major cities on certain dates.

As it turns out, cataloguers are the most profitable stars in the online firmament, with average operating margins of 28 percent. “They know it works,” said e-tailing inc.’s Freedman. “The question becomes, ‘How far can it go?’ We’re 10 years into this already, and the question is, ‘How big can this be in terms of percentage of online sales to total retail?’”