'Pure Players' Gain Bigger Bottom Lines
It has become increasingly clear that offering online shopping means gaining larger profit margins for most retailers. For one thing, gone are the days of pricey custom Web development programs and costly site maintenance. New software and more competitive, savvier site designers have changed the e-tailing landscape.
What has also changed is that most online retailers have expanded their margins, whether those retailers are “pure players” with only online stores, those who sell primarily through catalogs or those who originally branded their names through bricks-and-mortar stores.
Up until this emerging dynamic, data indicated that the multichannel retailer had the best prospect for profitability on the Web. But new research reveals overall revenue for e-tailing went up 21 percent in 2003 over the previous year and revenue for many e-tailers surged past the break-even point.
Macy’s, J.C. Penney Co. Inc., Gap Inc., Sears, Roebuck & Co. and a number of others are all doing well selling clothes both online and in their stores. But moving toward even greater profitability at a faster rate is a growing list of (nearly) “pure players,” including Delia’s Corp., Liz Claiborne’s Elisabeth line, Big Dog Holdings Inc. and International Male (which abandoned its physical stores last year).
According to a recent study by the Shop.org division of the National Retail Federation, 2004 is expected to show a 27 percent growth rate in total online retail sales revenue over 2003, with apparel expected to maintain a 40 percent growth rate. What is surprising is that “pure-play” retailers have risen in profitability the fastest, though multichannel sellers continue to grow at a greater clip, too.
What has made the difference?
“Search-engine marketing really started to come into play last year, which really helped companies get their marketing costs under control,” said Scott Silverman, executive director of business development for Shop.org. The primary search engines—Google, Yahoo! and Ask Jeeves—now feature improved software, so advertisers are only charged for “clickthrus” from the visited site to retailers’ sites.
These more cost-effective marketing options, which result in larger wholesale volume purchasing, have allowed e-tailers to get better prices from their suppliers and have driven down the cost of goods sold from 59 percent of the retail price in 2002 to 34 percent in 2003. With costs of goods down, e-tailers were also able to slash marketing costs per order from $10 in 2002 to $2 in 2003.
Site Review: Tommy’s New Addition
Tommy Hilfiger’s new kids’ site, www.tommy.com/kids, goes far to entertain and amuse its young audience.
The site, designed by San Francisco– based Organic Inc. (www.organic.com), launched last February as an extension to the main Tommy Hilfiger site, www.tommy.com.
There is nothing directly for sale here (as is the case on the main site), but interactively “playing” with Tommy Kids merchandise is so much fun. Among the site’s best features: a game that allows a young viewer to place garments on images of kid models, paper-doll style; a sweepstakes game offering $1,000 in merchandise to winners; a complex and challenging hide-and-seek group photo with Tommy shoes hidden throughout the image; and the fascinating “Fashion Friends” area, which allows a girl to dress up a cartoon model with Tommy garments and pretend it is herself. Talk about a model for creating product demand.
The Tommy Kids site adjoins the main Tommy site but has a decidedly separate look, feel and intended audience. The kids’ site is bursting with color and engaging interactive animations, while the established main site is subtle, serious and sophisticated, leaning toward a direct approach to product sales and brand building.
But why confine the whimsical fun of the kids’ segment just to the kids’ area? The playfulness could be spread throughout the site. (How many of us secretly enjoy playing solitaire on our computers?) Games and contests are not just for children. Such activities are also great marketing tools for adults.
