The growth in online retail sales has been remarkably consistent since the recession ended in 2010. It’s averaged just over 15% during that period, and shows no sign of slowing down. In fact, in 2017 e-retail growth accelerated to 16.0%, according to the U.S. Commerce Department, the first year of above-15% growth since 2011.
The retailers ranked in the just-released 2018 Internet Retailer Top 1000 accounted for roughly 92% of the 2017 online retail sales in the U.S. and Canada, and thus provide valuable insights into what’s driving consistent growth.
Looked at from a distance, the Top 1000 online retailers in North America had a terrific 2017. Their online sales collectively increased 18.5% during a year in which total U.S. retail sales (excluding items like cars and fuel rarely purchased online) increased 3.8%.
When you exclude online sales, the rest of the retail industry—stores, vending machines, door-to-door sales, mail order and everything else—only increased by 2.2%. And that was in the strongest year the retail industry has seen in years. The web accounted for 13.0% of total U.S. retail sales, excluding vehicles and fuel, up from 5.1% a decade earlier, in 2007. What’s more, e-commerce represented 49% of growth for the U.S. retail industry.
It would be easy to conclude from this data that online retailers are prospering and everyone else, particularly merchants that operate bricks-and-mortar stores, are in trouble. But the reality is more complex.
For starters, it’s imperative to consider the outsized impact Amazon.com Inc. (No. 1 in the 2018 Internet Retailer Top 1000) is having on the entire retail industry. Amazon increased its U.S. online sales by 21.2% last year, using the estimating method Internet Retailer employs, well above U.S. e-commerce growth of 16.0%. And the leading online retailer accounted for more than 30% of all Top 1000 sales in 2017.
Not only does Amazon take sales away from its competitors, it forces up their costs, particularly by putting pressure on everyone else to match the free, two-day shipping Amazon guarantees to members of Amazon Prime. Big store-based retailers have sought to counter Amazon’s free shipping offer with free in-store pickup and returns, and in some cases by shipping online orders from stores that are close to online shoppers to reduce shipping fees. But those programs are neither cheap nor easy to build, and such retail chains as Walmart In. (No. 3) and Target Corp. (No. 17) reported fourth-quarter stumbles related to their omnichannel initiatives.
The 221 retail chains ranked in the Top 1000 increased online sales at an above-market rate of 18.6% in 2017. And several of the biggest retail store operators reported year-over-year web sales increases of more than 20%, including Walmart Inc. (No. 3), The Home Depot Inc. (No. 7), Best Buy Co. Inc. (No. 8), Target Corp. (No. 17) and Lowe’s Cos. Inc. (No. 21). Nordstrom Inc. (No. 16) increased online sales by 19.0% in 2017, also above the market average.
The largest cohort in the Top 1000 are the 397 retailers that sell primarily online, and they collectively grew the fastest among the four major types of merchant groups in Internet Retailer’s Top 1000 analysis. Web-only retailers increased their sales by 20.6% in 2017 over 2016, well above the U.S. market growth. Even when taking out Amazon, web-only retailers still increased their sales by 19.5%, faster than any other type of merchant.
Collectively, the 255 manufacturers in the Top 1000 increased their online sales in 2017 by 15.9% over 2016, slightly less than the 16.0% growth in U.S. e-commerce and nearly three percentage points below the Top 1000 average growth of 18.5%.
But there is a subset of manufacturers that grew more quickly. These are brands that design their own products and sell them initially online, rather than in stores, in the manner of such traditional manufacturers as Nike Inc. (No. 27) or Under Armour Inc. (No. 33). Such startups are referred to as “digitally native vertical brands,” or DNVBs, and their control of the design and production process potentially affords them a greater profit margin than they would enjoy if they bought and sold goods from other suppliers. They also enjoy an advantage that’s increasingly important today: They can create unique products—merchandise consumers can’t find on Amazon.com.
There are many examples of innovation, from the ways big retailers use their stores to offer convenience in new ways to retail websites using augmented reality to let web shoppers see goods in new ways. The 2018 Top 1000 Analysis Report provides plenty of examples of how the leading online retailers are innovating as they fight for their share of the growing e-commerce market.
The 2018 edition of the Top 1000 is available as a PDF report or in an online database format. The 120-page report provides a comprehensive look at the trends and key players shaping the U.S. e-commerce industry, as well as a deep dive into who the leaders are and an in-depth analysis of key e-commerce metrics, such as conversion rates and average tickets, by merchant types and retail categories. The report also includes a list of the Top 1000 companies.
The online database—depending on the subscription level—gives the list of companies and a host of exclusive data, including financial and operational data, key e-commerce executive names and a list of technology vendors each merchant uses to run its online retail business. Each purchase of the Top 1000 database includes a free copy of the Top 1000 and Top 500 analysis reports.
Additionally, Digital Commerce 360 Premium Members get access to all Internet Retailer reports, including the 2018 Top 1000 and Top 500 analysis reports. To learn more about Premium Memberships, click here.