Reaping online riches

Aug 01, 1998 9:30 PM  By

In 1997, the number of online shoppers increased to 11.2 million, 76% of whom made multiple purchases, according to a joint study by New York City-based mar keting research company Cyber Dialogue, and Organic, a strategic marketing and technology consultancy in San Francisco. Moreover, while Cyber Dialogue and Organic expect online consumer spending to grow to more than $34 billion by 2002, research firm eMarketer expects business-to-business firms to account for nearly eight times as much in online sales-$268 billion-by that time.

The top 15 online retailers of merchandise, as determined by Catalog Age and industry experts, are listed at left. Last year they accounted for $6.51 billion in sales.

The 10/90 rule? According to eMarketer’s 1998 eCommerce Report, the top 10% of companies online accounted for more than 90% of all Web sales. And not only do a handful of merchants dominate the Web, so do a handful of product categories: computers, flowers, and books.

It’s no surprise that the top five Websites are computer companies. Although computer catalogers, and b-to-b companies on the whole, typically have a higher price point than consumer firms, “the business-to-business market is rapidly growing for one reason: The purchasers are already online and ready to buy,” says Lauren Freedman, president of Chicago-based online marketing and research company The e-tailing Group.

San Jose, CA-based Cisco Systems, a manufacturer/cataloger of networking computer products, tops the list of online marketers with Web sales of $3.2 billion. In fact, the Internet accounts for nearly half of its $6.4 billion in total revenue. Another computer cataloger, Digital Equipment Corp., which was purchased by computer manufacturer Compaq in January, saw a 313% increase in Internet sales, from $230 million in 1996 to $950 million last year.

Newcomers make their mark You might think that traditional catalogers, with their experience in marketing, customer service, and distribution, would dominate the ranking of top Websites. But one-third of the companies listed among the top 15 sites are Internet-only businesses. Online bookseller Amazon.com, computer cataloger Cyberian Outpost, and software merchant Software.com are just a few examples of firms doing business only on the Web. In fact, one of the top online marketers, software merchant Egghead, earlier this year closed its stores and shut down its catalog to concentrate on online sales.

“Virtual retailers are more flexible and more focused on the medium than traditional retailers,” Freedman says. “As a result, they’re more innovative in marketing and in using the tools that work best for the Internet.”

NECX, the Peabody, MA-based online computer reseller, generated $60 million in 1997, compared to $30 million in 1996. Director of marketing Sandra Marrinucci attributes the sales growth in part to the interactivity and extensive product information that it can provide online. Since adding a comparative pricing search function, which searches competitors’ sites to ensure that customers find the best price, sales have increased another 30%. “By providing our customers with the right information, they can make better buying decisions, and we’re confident they’ll come back to us,” Marrinucci says.

Still, nobody can argue the power of brand names such as J. Crew or Disney. Not only does the name drive traffic to a Website, but such companies can also promote their URLs in their catalogs and stores-an advantage over ‘Net-only firms. “People know what’ll they’ll find when dealing with an established brand,” says Marian V. Marchese, cofounder of VirTu, an Internet strategic marketing consultancy based in Philadelphia.

Although the Web accounts for less than 1% of Lands’ End’s total sales of $1.24 billion, or an estimated $3 million last year, the apparel cataloger credits its online revenue to “a combination of products, marketing, and brand name,” says spokesman Thane Ryland.