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BEHIND THE ONLINE APPAREL BOOM

There’s an explosion in online sales of apparel. Here are the financial, operating and statistics and trends of the 250 leading apparel e-retailers that are taking all of the growth away from stores.

Sponsored by: BEHIND THE ONLINE APPAREL BOOM BY JACK LOVE

An exclusive look at who and what is steering U.S. apparel sales to the web from stores.

he United States is the largest apparel market in Online Share of U.S. Apparel the world, consuming about 30% of the output of Tthousands of apparel manufacturers—and millions 2014 2015 of their workers—around the globe. And more of America’s retailers are dedicated to selling apparel than any other product line. So when there’s a sea change in the way apparel is 14.8% 17.0% sold, it’s a very big deal. According to a new research report published last month by Internet Retailer, that transformation has begun as billions of dollars of apparel sales are moving from physical stores to the internet. That report, entitled “Behind the Online Apparel Boom,” reveals 220 basis points increase that U.S. websites last year sold an estimated $80 billion in Source: Top500Guide.com apparel, an increase of 19.7% from the prior year, growth that’s fully five percentage points greater than the country’s Amazon’s apparel sales growth came largely at the total e-commerce market. By comparison, U.S. store sales expense of stores, not from other apparel e-retailers. of apparel grew a mere 1.1% to an estimated $375 billion The 250 apparel and accessories merchants included in 2015. in Internet Retailer’s Top 1000 database, which ranks America’s largest e-retailers based on 2015 web sales, With apparel sales surging online and sagging in stores, grew their combined revenues by 14%. That roughly the web’s share of 2015 apparel sales rose to 17%, up equals the average growth rate for all e-retailers and from 14.8% in 2014. By comparison, e-commerce last suggests that Amazon’s apparel sales growth was year accounted for 10.6% of sales when factoring incremental to—not detrimental to—online sales of other out items not normally bought online, such as fuel apparel merchants. and automobiles, according to the U.S. Commerce Department. Not since Amazon.com Inc. began The Internet Retailer research report analyzes the sales, cannibalizing bookstores in the 1990s and Apple Inc.’s marketing and shopper trends in the online apparel iTunes did the same to music stores a decade later, have market through a detailed analysis of the 250 apparel web-only merchants gobbled up such a significant share e-retailers ranked in the Top 1000 database. And one of its of a major retail market at the expense of stores. principal conclusions is that apparel websites owned by retailers that also operate stores are more than holding Much of the growth of the online apparel market share their own in apparel e-retailing. is attributable to the massive expansion of Amazon’s marketplace, through which Amazon markets and For example, the websites of the nation’s nine leading processes purchases of apparel for hundreds of mostly department store chains in the database—all formed prior small and midsized apparel retailers and manufacturers, to the creation of Amazon’s marketplace—collectively taking a cut of each transaction. Created in 2002, apparel account for the largest share of the online apparel market. and accessories SKUs and sales on Amazon’s marketplace In fact, despite the growth of Amazon’s online apparel have soared in recent years, and last year alone grew business, the department stores’ websites last year grew 48% to $16.3 billion, according to research from Cowen 19% to $15.6 billion, nearly all of it in apparel. Group.

1 » BEHIND THE ONLINE APPAREL BOOM Sponsored by: Foresee The success of department stores helps explain why retail Web-Only Apparel Merchants Are chains’ websites still account for more than half of the nation’s online apparel sales. Fully 63.9% of total sales of Growing Faster the 250 apparel websites included in the Top 1000 were Web-Only 16.3% generated by retail chains’ websites, with only 14.3% by web-only merchants, 14.5% by apparel manufacturers Retail Chain 14.8% and 7.3% by catalogers. The online performance of department stores is the biggest single reason for this Manufacturer 13.8% anomaly. Unlike retail chains in many other segments of Cataloger 3.9% the retail market, department stores were early adopters of e-commerce technology, setting up their sites between TOTAL 14.0% 1996 and 2002, and heavily promoting them through Source: Top500Guide.com paid search advertising to leverage their brands and loyal customer bases. This experience is different from most other merchandise is Nine Line Apparel, a 4-year-old site that sells patriotic segments of the e-commerce market, where web-only and accessories geared to military veterans and merchants hold sway. Nearly 42% of the total sales of Top first responders. It became the country’s fastest-growing 1000 e-commerce operators are controlled by web-only apparel e-retailer when it grew 391% last year to $9.3 merchants, which last year grew 16.9%, well above the million in annual sales. It expects its e-commerce sales average 14% growth rate of all Top 1000 e-retailers. Even to exceed $15 million this year. Overall, web-only apparel with the counter-balancing effect of the department stores, merchants last year grew faster than their competitors however, web businesses of all retail chains accounted for from retail chains and branded manufacturers. 28.1% of total online sales, and they grew just 11.7% last year. TARGETING NEW MARKET SEGMENTS In addition to Amazon’s influence and the historic success As the Nine Line story illustrates, the online apparel of apparel chains in e-commerce, Internet Retailer market is becoming more segmented. Internet research reveals many new trends driving the growth and Retailer’s research measured the sales and growth changing the nature on the online apparel market. These of 17 merchandise segments of the online apparel are summarized below. market, the first such detailed analysis of its kind. It shows that 77% of the market comes from four WEB-ONLY MERCHANTS traditional segments—department stores (31%), other general apparel merchants (26%), shoe manufacturers Until a few years ago, clothing merchants and manufacturers and retailers (12%) and women’s apparel (8%). But with well-established store and product brands, such as four of the five fastest-growing­ segments of the Nike Inc., Macy’s Inc., Lands’ End Inc. and Coach Inc., drove online apparel trade are either narrow or underserved much of the online apparel business. But last year, seven of niches, including men’s apparel (which grew at 29%), the 10 fastest-growing apparel e-retailers were newer web- outerwear (up 26.6%), specialty apparel such as the only merchants without household names that are targeting merchandise Nine Line sells (up 23.5%); and plus-size extremely narrow market segments. One of many examples apparel (up 19.4%). (See chart, page 12.)

Online apparel sales soar and take market share from stores

U.S. Apparel Sales 2015 2014 2015 Growth

Online Apparel 250 $50,401,772,630 $44,219,513,219 14.0%

Amazon & Other E-Retailers $26,581,522,985 $20,076,985,972 32.4%

Total Online Apparel $76,983,295,615 $64,296,499,191 19.7%

Apparel Stores $375,350,000,000 $371,230,000,000 1.1%

Total Apparel Sales $452,333,295,615 $435,526,499,191 3.9%

Online Share of U.S. Apparel 17.0% 14.8%

Source: Top500Guide.com, U.S. Commerce Department, Internet Retailer estimates.

2 » BEHIND THE ONLINE APPAREL BOOM Sponsored by: Foresee Conversely, some of the slowest-growing online apparel segments feature a wider selection of products. The general apparel Men’s Apparel: Fastest-Growing Segment of category grew just 9.3%, well below the Online Apparel market. Off-price and flash-sales apparel, which are focused on lower prices and not 2015 growth rate on a product niche, also underperformed the market, growing just 8.7% and 2.7% Men’s Apparel 29.0% respectively. But the worst performing apparel and accessory segment online is Outerwear 26.6% handbags and luggage, once a high flier in e-commerce. This segment is still led, but no longer dominated, by Coach. Its website once Specialty Apparel 23.5% featured substantial discounts on promoted items, which led to lower margins and possibly Shoes 20.5% tarnished the high-end nature of the brand. Last year the brand’s management eliminated Plus-Size Apparel 19.4% those promotions. Web shoppers revolted, and Coach’s online sales fell last year to an estimated $200 million from $500 million the Department Stores 19.0% year before, the largest decline in the apparel and accessories market. The moral: When web Custom 18.4% merchants compete on price, they must do so only if discounted prices can be sustained over the long term. Women’s Apparel 17.7%

MARKETING CHANGES Children’s 15.9% While department stores and other major apparel brands established a dominant position 15.9% in the online apparel market through heavy spending on search advertising, paid search Uniform/Tradeswear 15.7% marketing is no longer yielding incremental gains in apparel sales, likely because this marketing platform is so saturated. It is true Accessories 13.1% that the 10 apparel e-retailers who spent the most on paid search grew sales last year by General Apparel 9.3% Online Apparel 250 19%, but those gains can be traced to other average growth forms of marketing. Indeed, the 10 apparel Off-Price Apparel 8.7% e-retailers spending the least on paid search marketing grew nearly 25% in 2015, thanks to other digital marketing channels. A similar Sleepwear/ 4.6% pattern is seen with the original form of digital marketing—email—where the biggest users Flash-Sales Apparel 2.7% grew at a slower rate than the least frequent emailers. -31.5% Handbags/Luggage On the other hand, marketing appears to be the most powerful form of online apparel promotion right now. The 10 14.0% apparel websites with the greatest number

of likes—and highest ratio of likes Source: Top500Guide.com to sales—grew 18.6% last year, compared to just 5.6% for apparel e-retailers with the weakest presence on Facebook. A similar, though somewhat smaller, spread in sales is found between apparel websites that have the largest and smallest following on Twitter.

3 » BEHIND THE ONLINE APPAREL BOOM Sponsored by: Foresee "The 10 apparel websites with the highest percentage of male shoppers (a median of 65%) last year grew at an impressive 21.5% rate"

THE SHIFTING DEMOGRAPHICS OF ONLINE This age demographic variation coincides with trends APPAREL SHOPPERS related to the incomes of online apparel shoppers. Countering the impression that wealthier shoppers are It may come as no surprise that women make up the to be more highly coveted, the 10 apparel websites with largest segment of online apparel shoppers, averaging the highest percentage of shoppers earning less than 56% of the buyers on the 250 apparel sites studied in the $60,000 annually (61%) grew by 16% last year, three report. But it is surprising that the 10 apparel websites times the growth rate of the 10 apparel e-retailers with with the highest percentage of male shoppers (a median the wealthiest shoppers, 64% of whom had incomes of 65%) last year grew at an impressive 21.5% rate, of greater than $60,000. This is despite the fact that the compared to just 13.9% for the 10 apparel sites with the average ticket for the first group was just $78, less than highest percentage of female shoppers (a median of half the $199 average ticket of the second group. 75.5%). These demographics coincide with the report’s revelation that men’s apparel is the fastest-growing With online sales pressing ever closer to 20% of total segment in the online apparel trade. U.S. apparel sales, retailers must understand who and which categories are steering growth. Broken out by age, apparel websites that appeal mostly to millennial-age shoppers are also growing faster than sites targeting older shoppers, once the core of the online Jack love is the founder and publisher of Internet Retailer apparel business. Sales at the 10 apparel e-retailers with [email protected] | @JACKLOVEIR the greatest percentage of shoppers 34 years old and under (a median 62% of these merchants’ customers) grew faster than the 10 apparel websites with highest median percentage of shoppers 35 and older (78%). This is despite the fact that the former group had an average ticket of just $91, or $38 below the average ticket of all online apparel merchants in the study.

4 » BEHIND THE ONLINE APPAREL BOOM Sponsored by: Foresee SPONSORED INSIGHT

Optimizing the customer experience is the goal for apparel retailers

Studies show that the customer experience—whether on a website, on a mobile device, or in-store—is critical to a retailer’s ability to grow its business. Yet recent research has also shown that time and again, retailers are failing when it comes to delivering an exceptional experience to their customers. According to a recent report by research firm Forrester, 71% of companies say that their customer experience programs are failing to move the needle when it comes to growing their business.

“One problem is that many companies don’t use the “And we respond by providing tools that improve visibility same level of precision, certainty, and rigor for customer and inspire brand confidence by capturing reviews and experience programs that they use in other areas of their ratings, along with expert analysis, to understand the larger business,” says Eric Feinberg, vice president of ForeSee, picture of the customer experience,” Feinberg explains. a customer experience analytics company. “You wouldn’t By using an algorithmic approach to analyzing survey manage inventory or financial projections with high-level, responses and benchmarks, he adds, a full suite of tools give vague information, and you shouldn’t run customer apparel retailers a peek into the future—allowing them to act experience programs that way either. Retailers need to move with certainty when making decisions about their business. from conducting general or haphazard customer surveys to a scientific and actionable measure of the full experience ForeSee’s technology was recently put to work for one they are providing their customers across channels.” large apparel retailer with a reputation as a customer service leader. Some of its online shoppers were becoming Feinberg says this is especially true for apparel retailers, frustrated after they placed an item in their cart that who are facing the challenge of increasing customer was listed as available on the e-commerce site and then expectations coupled with a decreasing understanding discovering at checkout that it had disappeared. The of the omnichannel customer experience. According to retailer’s internal technology team investigated the issue, the ForeSee Experience Index (FXI), an annual report that was unable to recreate the error and assumed that it wasn’t analyzes customer experience with hundreds of retailers, really impacting the business. This highlights the chasm 53% of apparel shoppers are not loyal to a particular apparel between what a business understands about its customer retailer. “In fact, most shoppers consider several retailers and what is actually going on in the minds of its customers. equally,” Feinberg says. “Apparel retailers in particular That’s when ForeSee stepped in with its movie replay tool— have a chance to really differentiate and win based on the and it was able to show that the problem was occurring customer experience they provide, since we know that good much more frequently than the retailer suspected. experiences breed both sales and loyalty.” “At an average product price of $68 and the problem For apparel retailers to connect with their customers in occurring potentially between 2,000 and 12,000 times per ways that improve business outcomes, they must do three day, the retailer was losing up to $816,000 worth of sales things: measure their experiences with certainty, visualize every day for merchandise that should have been available,” those experiences, and respond accordingly. The ability to Feinberg says. “But not only were they losing the sale of the accomplish these goals relies on tools, such as ForeSee’s item that was falling out of the cart, they were also losing analytics technology. even more when customers would abandon their carts entirely.” “We measure using surveys that frame the right questions, which allow our clients to understand and improve their According to Feinberg, this is a perfect example of why customer’s experience meaningfully,” Feinberg says. customer experience is so critical to the success of “Visualizing those experiences using a ‘movie replay’ any retailer. “Customer experience programs should be technology actually allows apparel retailers to watch how strategic, rigorous disciplines in retailers’ business, and customers are engaging with a digital experience, including they should be based on metrics that allow them to act with scrolling and mouse movements. .” This enables the retailer certainty,” he adds. “In order to compete today and to drive to see where shoppers are struggling and efficiently the outcomes they want, apparel retailers must begin to use resolve issues that are negatively impacting the customer a comprehensive platform to understand their customer experience. experience needs.”

Top 250 Apparel Leaders Admit it. You don’t know enough about your customer.

Getting the customer experience right is your #1 competitive weapon. Even so, 53% of shoppers are not loyal to a particular apparel retailer.* You know you could improve your CX, but you don’t have the full picture.

Imagine knowing — with certainty — where your CX improvements will have the biggest impact before you make them. That’s ForeSee. Our predictive analytics help you understand your customers from their perspective, and at every interaction point in the omnichannel customer journey.

*ForeSee Experience Index 2015 Retail Edition.

Visit ForeSee.com/Retail to learn how you can measure – and act on – CX with certainty. THE ONLINE APPAREL 250 The largest e-retailers in that predominantly sell apparel are ranked here in their primary segment of apparel retailing. These merchants collectively represent 65.5% of the online apparel market in the U.S.

General Apparel Shoes Women’s Apparel

Rank Company Name Rank Company Name Rank Company Name 1 Gap Inc. 1 Nike Inc. 1 Yoox Net-a-Porter Group 2 L.L. Bean Inc. 2 Foot Locker Inc. 2 Chico's FAS Inc. 3 Urban Outfitters Inc. 3 adidas America Inc. 3 Nasty Gal Inc. 4 Lands’ End 4 JustFab Inc. 4 Revolve Clothing 5 J. Crew Group Inc. 5 Shoebuy 5 The Talbots Inc. 6 Ralph Lauren Media 6 Tory Burch LLC 6 Kate Spade 7 Abercrombie & Fitch Co. 7 DSW Inc. 7 ModCloth Inc. 8 American Eagle 8 Deckers Brands 8 The Real Real Inc. 9 Eddie Bauer LLC 9 Shoes.com 9 The Limited 10 Express Inc. 10 Mason Companies Inc. 10 New York & Co. Inc. 11 Karmaloop.com 11 Caleres 11 Bluefly Inc. 12 Aéropostale Inc. 12 Nine West Holdings Inc. 12 Rent the Runway Inc. 13 Brooks Brothers 13 Crocs Inc. 13 Forever 21 14 Boden 14 Benchmark Brands Inc. 14 AmeriMark Direct LLC 15 ASOS.com Ltd. 15 TOMS Shoes Inc. 15 David's Bridal Inc. 16 Levi Strauss & Co. 16 Wolverine Worldwide Inc. 16 AMI Clubwear 17 DrJays.com 17 New Balance 17 Christopher & Banks Corp. 18 The Buckle Inc. 18 Payless ShoeSource Inc. 18 bebe stores Inc. 19 Guess Inc. 19 PlanetShoes 19 Destination Maternity Corp. 20 Hot Topic Inc. 20 Stuart Weitzman LLC 20 Lafayette 148 New York 21 Sundance Catalog Co. 21 Aldo Group Inc. 21 Dolls Kill 22 Trina Turk 22 Sole Society 22 Reitmans 23 23 Genesco Inc. 23 Eileen Fisher Inc. 24 Everlane Inc. 24 Skechers USA Inc. 24 PromGirl LLC 25 Inc. 25 Heels.com 25 BCBG Max Azria Group LLC 26 Pacific Sunwear of California 26 Boot Barn Inc. 26 Charlotte Russe Inc. 27 Uniqlo USA Ltd. 27 ShoeZoo.com LLC 27 Peruvian Connection Ltd. 28 Burberry Ltd. 28 JGear Inc. 28 DVF.com 29 Tilly's Inc. 29 StreetModa.com 29 The Wet Seal LLC 30 A/X Exchange 30 Sneakerhead.com 30 Dailylook 31 Michael Kors 31 Shiekh Shoes 31 Skye Associates LLC 32 Jimmy Jazz 32 Cole Haan LLC 32 The Red Dress Boutique 33 rue21 Inc. 33 R.G. Barry Corp. 33 Ulla Popken 34 Roots Ltd. 34 Shoes of Prey Ltd. 34 Francesca's 35 Island Co. 35 BootBay.com 35 Yoogi's Closet 36 Vince LLC 36 Gotham City Online 36 Lilly Pulitzer 37 Tonzof Inc. 37 Okabashi Brands Inc. 37 Le Tote Inc.

38 C.C. Filson Co. 38 WhatSheBuys

39 Hermes International 39 Planet Blue

40 True Religion Brand Jeans 40 Michael Stars Inc.

41 Calvin Klein Inc. 41 BoutiquetoYou.com 42 80sTees.com Inc. 42 UsTrendy 43 BlueCotton 43 KatydidCollection.com 44 Steven Alan 44 Long Tall Sally

45 Lifted Research Group Inc.

46 South Moon Under

47 Luxury Divas Corp.

47 Luxury Divas Corp.

7 » BEHIND THE ONLINE APPAREL BOOM Sponsored by: Foresee Sportswear Children’s Clothing Handbags/Luggage

Rank Company Name Rank Company Name Rank Company Name 1 Fanatics Inc. 1 The Children’s Place 1 Coach Inc. 2 VF Corp. 2 Carter's Inc. 2 eBags Inc. 3 LuLuLemon Athletica Inc. 3 Hanna Andersson Corp. 3 Vera Bradley Retail Stores 4 Inc. 4 The Gymboree Corp. 4 Tumi Inc. 5 The Finish Line Inc. 5 Tea Collection 5 Bag Borrow or Steal Inc. 6 MLB Advanced Media 6 CookiesKids.com 6 Kaehler Luggage 7 National Football League 7 Lolly Wolly Doodle Inc. 7 Fashionphile LLC 8 The Orvis Co. Inc. 8 Children's Wear Digest Inc. 8 Emilie M. Accessories LLC 9 Zumiez Inc. 9 BabyEarth 9 6 Pack Fitness 10 Road Runner Sports Inc. 10 Swap.com 10 Phoenix Leather Goods 11 RevZilla Men’s Apparel 12 Discount Dance Supply Uniforms/Tradeswear 13 National Hockey League Rank Company Name Rank Company Name 14 Title Nine 1 The Men's Wearhouse Inc. 1 Duluth Trading Company 15 NBA Media Ventures LLC 2 Bonobos 2 Dungarees.net 16 Prep Sportswear 3 Destination XL Group Inc. 3 U.S. Patriot Tactical 17 Swell Inc. 4 J. Hilburn Inc. 4 Working Person's Enterprises 18 World Wrestling Entertainment 5 Paul Fredrick 5 Queensboro.com 19 Speedo USA 6 6 BareBones WorkWear 20 Quiksilver Inc. 7 Nine Line Apparel 7 ChiefSupply.com 21 Active Ride Shop 8 French Toast 22 LogoUp.com Inc. Specialty Apparel 9 Slate Rock Safety LLC 23 MMAWarehouse LLC Rank Company Name 10 Historical Emporium Inc. 24 Barstool Sports 1 Sheplers Inc. (Western) 25 Massey's Outfitters 2 Betabrand Inc. (Crowdsourcing) Outerwear 3 Tipsy Elves LLC (Humorous) 26 Sports World Rank Company Name 4 Inked Shop (Think Tattoos) 27 StrongerRx Worldwide Corp. 1 Columbia Sportswear Co. 5 Galls LLC ("Public Safety") 2 LeatherUp.com Sleepwear/Lingerie 6 Country Club Prep 3 Coolibar Inc. Rank Company Name 7 ShoptheTV.com 4 Ibex Outdoor Clothing LLC 1 L Brands Inc. (Victoria's Secret) 8 Captain Dave's (Police) 5 Rock/Creek Outfitters 2 Bare Necessities Inc. 9 Express Design Group 6 ScotteVest Inc. 3 Inc. 10 Ranger Up 4 Inc. Plus- Sized Apparel 5 Frederick's of Hollywood Inc. Custom Apparel Rank Company Name 6 HipsandCurves.com Rank Company Name 1 Ascena Retail Group 7 Inc. 1 CustomInk 2 Eloquii Design Inc. 8 Hourglass Angel LLC 2 Threadless.com 3 Igigi Inc. 9 WebUndies.com LLC 3 Spreadshirt Inc. 4 Ashley Stewart Inc. 4 Indochino 5 JunoActive by Junonia Flash Sale Apparel 5 SunFrog Shirts Rank Company Name 6 DesignByHumans.com Inc. Fashion Accessories 1 Gilt Groupe Rank Company Name 2 RueLaLa.com Off- Price Apparel 1 Wild Attire Inc. 3 Beyond the Rack Rank Company Name 2 Trend Nation LLC 4 JackThreads.com 1 TJX Cos. Inc. 3 The Tie Bar 5 The Clymb 2 BHFO Inc. 6 DesignByHumans.com Inc. 3 Stein Mart Inc. 4 Burlington Coat Factory 5 Steals.com

8 » BEHIND THE ONLINE APPAREL BOOM Sponsored by: Foresee THE CONCLUSION

All of the sales trends in online apparel retailing point to an inescapable conclusion that selling clothing and accessories online is a very hot market at the moment. But simply competing in this market does not guarantee success. Though apparel is one of the web’s fastest growing markets, it is perhaps the most competitive. Responding to that competition by offering deep promotional discounts has not been a strategy that leads to success. Nor does following the crowd that appeals to the most common types of shoppers with the largest selection of apparel. Targeting a select group of shoppers with a highly specialized line of apparel—and building and strengthening your brand with a high level of social networking with your shopper base—is a formula more likely to yield success online. Couple that strategy with some level of participation in apparel marketplaces run by Amazon and others, as opposed to going it entirely alone—is perhaps the very best formula for prospering in today’s online apparel market.

FULL REPORT “BEHIND THE ONLINE APPAREL BOOM”

How to Obtain the Full Report The 38-page “Behind the Online Apparel Boom” is available for purchase in a downloadable PDF format for $299. It contains complete rankings and growth rates of all 250 apparel e-retailers in the Top 1000 database, complete details of the report’s findings presented in 30 charts and tables, and an in-depth analysis of the leaders and latest trends in the country’s online apparel market. For details and to order, visit www.InternetRetailer. com/top-1000-apparel-leaders/

For details and to order, visit www.InternetRetailer.com/top-1000-apparel-leaders/

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