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The Truth About The Top Internet Retailer List

The truth about the top internet retailer list

I always assumed that a list of “top” retailers would mean that overall performance would be a factor. I recently discovered that, with very few exceptions, this simply isn’t the case.

Over the holidays, I did an analysis of the top 99 publicly traded Internet retailers to hopefully identify what made them special. I put them into six groups based on their overall performance and my own home-baked criterion.

Based on the overall mixture of medians and averages, I came up with the following rudimentary performance scale. Each time a retailer outperformed a metric, it was  awarded a point (gold star).

  1. Greater than 3% net profit = 1 gold star
  2. Web as a percentage of business greater than 7% = 1 gold star
  3. Total revenue growth (Web and bricks) for 2010/2008 greater than 18% = 1 gold star
    1. This three-year period included the Lehman Brothers collapse, so if a business grew, this was a good sign that it was a healthy company that reacted well to change.
  4. Total Web revenue growth greater than 30% 2010/2008 = 1 gold star
    1. Overall Web revenue grew at a rate of 14% a year, so this number should easily be attainable by “top” Internet retailers
  5. Market cap greater than or equal to total revenue = 1 gold star

Now let’s review the results:

The starting point is gross margin on products/services sold.

Gross margin for internet retailers

  •  Both 5-star and 4-star companies start out, on average, at very high gross margins (Amazon being an exception at 22.35%).  It is clear that it is easier to perform at a high level when you start with lots of margin.

What you actually keep is another story altogether

web and brick and mortar combined sales

  • Even though 4- and 5-star companies start at the same level, they end at very different ones. It is clear that the 4-star companies are not necessarily rewarded for keeping such high profits. Sometimes you are better off investing even more into the business to ensure your continued value and growth.

The growth of overall revenue is very important as a metric because it shows accretive lift instead of simply a shift of sales to a new channel (i.e. commerce).

 

Internet Retailer Company Revenue Growth

  • The most interesting thing to note is that 4-star companies actually grew faster on average than 5-star companies over this three-year period.  So, shouldn’t total revenue and profit growth be rewarded on the markets? It sure seems like a win to me.

What about Web sales during this same three-year period?

web sales from 2008-2010

  • The highest e-commerce sales growth took place among the 3 and 5 stars, and comparing that to overall revenue, it appears as though most of the 3- star companies owed their total growth to e-commerce sales increases.

Now let’s see how the market rewarded all of their efforts.

market cap to revenue dollar of internet retailers

  • The 5-star companies are a goldmine, producing $3.50 for every $1 of revenue generated, but why are they valued more than the 4-star companies, which outperformed them on three out of four of the charts above?

There are many answers to this question, and my rudimentary rubric system comes far from answering them, but there is one final success metric we haven’t included yet.

web sales as a percentage of total business

  • The highest-valued Internet retailers had only one major win out of the five — the majority were Internet-only retailers. Investors are saying they will earn more in the long run from Internet-only retailers than they will from brick and mortar. Based on the numbers, we now know that some of the smartest and wealthiest people in the world see e-commerce as the winning horse for the future.

The Internet is an undisciplined troublemaker compelling the reinvention of businesses everywhere.  Now, let’s get back to the list.

 

Here she is…

Retailer Rating
Amazon.com Inc

5

Netflix Inc

5

Vistaprint NV

5

Urban Outfitters Inc

5

Shutterfly Inc

5

Ancestry.com Inc

5

Deckers Outdoor Corp

5

Under Armour Inc

5

Lululemon Athletica Inc

5

Apple Inc

4

Microsoft Corp

4

Green Mountain Coffee Roasters Inc

4

Fossil Inc

4

Vitamin Shoppe Inc

4

Crocs Inc

4

Tempur Pedic International Inc

4

Jos A Bank Clothiers Inc

4

Staples Inc

3

W W Grainger Inc

3

Overstock Com Inc

3

Symantec Corp

3

US Auto Parts Network Inc

3

Blue Nile Inc

3

Ralph Lauren Corp

3

Weight Watchers International Inc

3

Vitacost.com Inc

3

Aeropostale Inc

3

Autozone Inc

3

E Express Inc

3

Children’s Place Retail Stores Inc

3

Chicos FAS Inc

3

VF Corp

3

Estee Lauder Companies Inc

3

Coach Inc

3

Bed Bath & Beyond Inc

3

Dsw Inc

3

Buckle Inc

3

Lumber Liquidators Holdings Inc

3

Dell Inc

2

Wal-Mart Stores Inc

2

Macy’s Inc

2

Systemax Inc

2

Gap Inc

2

Williams Sonoma Inc

2

HSN Inc

2

Avon Products Inc

2

Kohl’s Corp

2

Nordstrom Inc

2

Saks Inc

2

Cabelas Inc

2

Barnes and Noble Inc

2

Pc Mall Inc

2

Foot Locker Inc

2

Abercrombie & Fitch Co

2

American Eagle Outfitters Inc

2

NutriSystem Inc

2

Walt Disney Co

2

Nike Inc

2

PetMed Express Inc

2

Tiffany and Co

2

Hot Topic Inc

2

Guess? Inc

2

Columbia Sportswear Co

2

Office Depot Inc

1

Sears Holdings Corp

1

Officemax Inc

1

Costco Wholesale Corp

1

Hewlett Packard Co

1

J C Penney Co Inc

1

Target Corp

1

PC Connection Inc

1

Home Depot Inc

1

1-800-Flowers.Com Inc

1

Scholastic Corp

1

Walgreen Co

1

Cvs Caremark Corp

1

Lowes Companies Inc

1

Coldwater Creek Inc

1

Talbots Inc

1

GameStop Corp

1

School Specialty Inc

1

Bidz.com Inc

1

Bluefly Inc

1

dELiA*s Inc

1

Panasonic ADR Representing 1 Ord Shs

1

American Greetings Corp

1

Zale Corp

1

Radioshack Corp

1

American Apparel Inc

1

PetSmart Inc

1

West Marine Inc

1

Wet Seal Inc

1

bebe stores inc

1

Best BUY Co Inc

0

Safeway Inc

0

Charming Shoppes Inc

0

Dillard’s Inc

0

Pacific Sunwear of California Inc

0

Liz Claiborne Inc

0

I will provide an updated list to include 2011 once I have access to the complete results.

This may be a nice reference the next time some 3rd party calls you referencing all the “TOP” Internet retailers it works with.  When it says  “Best Buy,” I would just hang up the phone.

Please feel free to comment and use this same system to see where you rank over the last few years.

Don’t talk about SOPA! (Stop Online Piracy Act)

fight sopa!

Believe it or not, I work in a field considered to fall into the “tech” category. Since I was very young, all things resembling the electronic genome fascinated me immensely, which spawned a wonderful relationship with such devices for my entire life. It was natural for me to fall into the profession that I did as a result of this early romance. The only reason I recount this brief history of my psyche is because it is the field that I know and love that has also become the growth engine for our country. It is within this industry that innovation is still happening, and it is why I am so passionate about SOPA (Stop Online Piracy Act).

The idea of a “lawless internet” should not have a dark light cast over it. Long ago in our country, “lawlessness” existed, or at least we lacked as many laws as we have today. It was during this “lawless” time that job creation was in fact part of the American dream. People took what little they had and headed West in hopes of finding something better, and they created cities and businesses with very little “start-up capital”. Innovation often doesn’t occur without constraints.

I would argue that the innovation, invention and revolutionary ideas we have been witness to over the last two decades occurred with constraints pushing them to fruition. Traditional brick-and-mortar business is now wrought with so many laws, constraints and start-up capital requirements that the lion’s share of businesses are doomed before they even have a chance at success As a result of such constraints, college kids and entrepreneurs sought to “green-field” a new type of business – one that resembled what once was the American dream. They were forced to create something in a realm not governed by the same laws and constraints of traditional business. The tech-preneur operated within a different constraint. They had to create a new road for others to follow – to keep the dream alive. The old system had become so difficult to navigate it smothered any chance of success – innovation forced its way free from possible suffocation.

SOPA is not just about privacy or copyright infringement. It is about stopping change – stopping innovation. The music industry and movie/television industry are huge advocates for the passing of such a bill. It is the companies and industries that fail to reinvent themselves that fear the sweeping change the open exchange of knowledge brings. The radio industry fought television. The music industry fought digital. Blockbuster video fought Netflix, Redbox and the idea of streaming video. We need to fight for innovation and the revolutionary change radiating from Silicon Valley outward. I love that the very definition of innovation includes the word revolutionary because this is the absolute reinvention that many of these industries need to create to survive. Change is coming no matter what, and SOPA will only slow it.

The Internet today is free enterprise as it was once dreamed and known, before laws and too much constraint smothered it. You can start an Internet business today for less than $1,000 annually. A traditional brick-and-mortar business will cost you an average of $5,000 per month ($60,000 annually). Is it any wonder why it is the tale of two nations when you compare Silicon Valley to the rest of the US? We have created the old West once again, and we are hiring despite the massive economic downturn. We are one of the few places where the true American dream still exists.

I believe SOPA is the first step of many to halt the ONLY economic growth this country is currently experiencing. Why would you even attempt to hurt one of the only industries currently hiring. If our government was really supportive of job creation, then it might be better off simply replicating the same innovative culture that exists today in tech. Reinvent business and education and reintroduce free enterprise. Private businesses tend to run a bit more efficiently than the government (DMV is a prime example). We need to Be The Change and stop complaining about the government changing it for us. Privacy has been dead for a long time, and I would leave that fight up to the media industry (movie, television, print and music) and continue to focus on creating more jobs, not killing the only ones available. The last thing we want is an Internet run by the DMV.