Retail - Despite Economy, Many E-Commerce Initiatives

When it comes to cutting expenses, one area appears off limits for larger retailers – e-commerce. Sports Chalet, Eastern Mountain Sports and Backwoods Equipment Co. (see Q&A with Jennifer Mull) are all moving forward with major e-commerce initiatives this year despite the economy. There is a sense among some that the recession may actually accelerate consumer’s migration online.

It’s easy to see why after reviewing the data. While the recession has slowed online sales growth dramatically from a year ago, sales are still growing. That’s an amazing feat in this economy and a portent of things to come. Consumers are clearly becoming more comfortable buying outdoor apparel, footwear and gear online.

Online sales of outdoor product rose 13% in December, while outdoor specialty sales fell 10%, according to the OIA Retail Sales Topline Report for the month. Research shows shoppers have increasingly identified Internet-only retailers – such as Overstock.com, Zappos.com and Amazon.com – among those who offer the best customer service.

Moreover, the OIA Specialty Retailer Operational Report shows that retailers with more than 10% of total sales online have a higher profit margin (8.2%) than retailers with less or no online sales (4.5%). Online sales comprise 14.2% of sales for stores with less than $1 million in sales compared to 6.2% for stores with more than $2 million.

Yet as recently as 2006, 46% of single store outdoor retailers and 38% with less than $1 million in sales still did not sell online, according to OIA research.

Still, e-commerce is not for everyone. It requires a major commitment on top of your existing brick-and-mortar operations, notes Dawson Wheeler, co-owner of Rock/Creek Outfitters, the Chattanooga, TN, retailer that has sold online for 10 years.

Wheeler said selling online can be a great tool for a successful retailer who is beginning to max out their sales per square foot because of limited market size and local competition.

“But as a life jacket, trying to keep myself afloat I would not look at it for $1 million,” Wheeler said. “It's a completely different business and just because you're a good retailer, does not mean you are a good online retailer. You are talking about a whole new workforce of folks who are far more technical. The day you start out, you are going against backcountry.com, Altrec and others. The competition is intense.”

Wheeler said retailers should expect the cost of launching a viable e-commerce business to equal the cost of opening a new a new brick-and-mortar store.

Online, as in store, retailers must commit to the category, said Dan Mann, founding partner of the retail consulting firm TMG Inc. Mann advises retailers start by offering core product already in their assortment plan, i.e., those items that already have the highest inventory turns at their brick-and-mortar location.

“A lot of people are doing e-commerce, but they are throwing things at the wall and seeing what’s going to stick,” Mann said. “Retailers who take that approach are going to get in over their head. Opening a website is the least of their troubles. Marketing and order fulfillment are your biggest challenges.”