Aug 18, 2011

High-Profit Retailers Take Slow and Steady Approach to E‑Commerce

High-Profit Retailers are deriving less of their sales from the Internet than any of the five retail groups analyzed in the 2011 OIA Retailer Benchmarking Report. The report shows that only 46.7 percent of High-Profit Retailers sell online compared to 61.0 percent for the Typical Retailer. This may reflect a more cautious approach to e-commerce by High-Profit Retailers.

Creating, operating and promoting a nationally competitive e-commerce store can be extremely expensive, even when implementation goes right, said one retailer.

“You can easily get into tens of thousands of dollars very quickly,” he said. “We have not necessarily spent a lot of time marketing the site for that reason — because we are still learning.”

This retailer did a soft launch of their e-commerce store in July 2010 and has been surprised by how it drove traffic into their brick-and-mortar locations. Within days of launch, they received calls from customers researching products online and asking them to hold specific sizes of apparel and footwear or checking to confirm a piece of equipment they’d research online was in stock.

“We have been very cautious about the project and taken a very long-term view on return on that investment,” he said. “There are a lot of very good, sophisticated online marketers already. So to come in and make an impact right away is not realistic. You have to do it from the perspective of what’s right for your store.”

This may help explain why the median High-Profit Retailer generated just 6.3 percent of sales from the Internet compared to 11.3 percent for Typical Retailer and 9.4 percent for the largest retailers.

Still, Bill Kennedy, owner of Kenco, a store in Kingston, NY, now wonders if his assumptions about online selling were wrong. “I thought if I wanted to boost e-commerce I would have to cut margins, but the Typical Retailer has higher e-commerce sales and higher margins than me,” said Kennedy. He now intends to review his e-commerce operations.

Other data points from the study’s Marketing page show:

  • High-Profit Retailers selling online are much more likely to use comparison shopping sites like Pricegrabber or Nextag and significantly less likely to use auction sites like eBay. None did business with
  • High-Profit Retailers are early adopters of new marketing channels. For instance, 71.4 percent of them used social media for marketing in 2010 compared to 61.4 percent of Typical Retailers and 56.3 percent for large retailers.
  • Direct mail appears to be making a comeback. Two thirds of Typical Retailers are using direct mail compared to 59 percent in 2006, the last time it was measured.
  • The percentage of High-Profit Retailers using Internet banner ads has declined to 20 percent from 29 percent in 2006.
  • Just a third of High-Profit Retailers used radio advertising in 2010, compared to 59 percent in 2006.

The OIA Retailer Benchmarking Report breaks out results for the “Typical Retailer” and the “High-Profit Retailer”. The 2011 results are further broken down by sales cohort: retailers with sales under $1 million (small), sales of $1-$3 million (medium) and sales of more than $3 million (large).