Behind the Boom

RESEARCH the global leader in e-commerce data IRINTERNET RETAILER BEHIND THE ONLINE APPAREL BOOM There’s an explosion in online sales of apparel. Here are the ﬁnancial, operating and marketing 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 retail 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 clothing 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 Sportswear 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 Fashion 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.

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