Internet sales bonanza: is it on the horizon?

On-line apparel sales while still a small piece of the pie are on the upswing and trend watchers are predicting an explosion of activity going forward.

On-line shopping is still a drop in the consumer sales bucket. But it was big enough to make a splash in 1998, and could become a steady revenue stream for manufacturers and stores when more companies - such as Wal-Mart, which has been selling electronically since 1996 - get behind the concept.

Consider what Wal-Mart's president and CEO David Glass recently said: "We have been pleased with our customers' response to Wal-Mart Online. The service started slowly, but it's exciting and we're positioning it for the future. While stores will still be the dominant part of our business, Online will be important for convenience and cost." In his own way, Glass is like the Federal Reserve's Alan Greenspan: When he speaks, everybody listens.

Some visionaries in the apparel industry saw the wisdom of creating Web sites when selling on the Internet was in its beginning stage, about four years ago. And the early adopters - and later entries - had a payoff last year, if marketing research organizations' numbers and makers' and merchants' on-line sales reports are credible.

Skeptics may scoff, but well-known The Boston Consulting Group, in conjunction with shop.org, the on-line retailers' association, collected impressive data from leading on-line retailers in major gift categories - including apparel - from Nov. 23 to Dec. 20, 1998. The results show that year-over-year revenue for the holiday season more than tripled, growing by 230 percent, with the average order totaling $55, up 6 percent over the same period in '97.

Moreover, a poll taken by Ernst & Young (E&Y) of more than 1,300 consumers found that 10 percent have shopped on-line, up from 7 percent in 1997. Among the most popular items purchased was apparel. In a check of 41 retailers, E&Y found that 39 percent are selling via the Internet, up from 12 percent in the prior year. The stores, according to the company, expect the Web to account for more than 9 percent of sales by fiscal 2001. And America Online (AOL) reports that in one four-week period around Christmas, members purchased $1.2 billion worth of goods on the AOL Shopping Network. That is an estimated half of all business-to-consumer online sales during 1997.

Also taking it from the consumer side, Norwalk, CT-based INTECO Corp. found that some 35 million U.S. adults age 18 and older placed orders or made reservations on-line during the fourth quarter of '98, a 250 percent increase from the first quarter, according to a survey of 16,400 U.S. households representing a national sampling. The market intelligence organization estimates that 108 million adults, about 55 percent of the adult population, used the Internet during the past three months of the year, a huge leap from 40 percent just nine months earlier. It estimates that $6 billion to $7 billion was spent on Web-based purchases last year.

And it may be even more than that, according to Boston Consulting's research director, James Vogtle, who told Bobbin that his firm's estimates for 1998 show that about $13 billion was spent on the Web. Noting that his organization's numbers "were the first to get up to that order of magnitude," he adds: "A lot of estimates have been rewritten in the last year."

Granted, Internet commerce still accounts for less than 1 percent of retail sales, but Vogtle believes the rate of growth seen in '98 will continue for at least two years. Over the longer term, he expects, "There will be some major discontinuities along the way. [Growth] will come in spurts. But the demand is definitely there. People have told us with their actions that they want to shop this way. And the PC population is growing, plus there will be other ways of accessing the Net."

People have also told Ben Narasin, Web pioneer and founder of Fashion Mall (fashionmall.com) that they want to shop on the Internet. Narasin maintains that his site is "No. 1 in the world for the fashion category in terms of traffic." Indeed, the mall has grown tenfold in the past two years, and since October '96, when it received about 1.5 million hits, it has amassed more than 16 million hits. (See "On-line Apparel Shopping Making Steady, If Slow, Gains," Bobbin, January '97.) Of course, "hits" may be only a measure of consumers' curiosity, and they don't necessarily define the number of users.

Still, that interest has enabled Narasin's business to move forward. He continues to sign new designers, fashion makers, stores and catalogs, and says that Fashion Mall has been profitable for the past two years. Among those on the site are: Active Apparel Group Inc. (Everlast); Brooks Brothers; Delias; Joseph Abboud; Skechers; Dolce & Gabbana; Liz Claiborne; Sigrid Olsen (now a part of Liz Claiborne); Tommy Hilfiger; Carolee; K-Swiss; and Paul Fredrick.

Narasin challenges the naysayers with: "The Web is only going into its fourth year. We started in '94, and our site launched live to the public on July 5, '95, almost at the same time as Amazon.com. Prior to this, you couldn't buy anything [electronically] on the Web. You could buy items the year before through Internet Shopping Network, but you had to call by phone [to order]. Amazon is obviously the pacesetter now, going from $500,000 in '95 to a quarter of a billion dollars in one quarter. They're basically running sales of a billion dollars a year. You don't see that sort of growth in many places."

The entrepreneur declares, "If you're a major retailer or a brand of any substance and you're not on-line with an intelligent presence this year, you're going to be severely penalized. The stock market isn't going to help you out. And you're going to start losing [customers]."

In that regard, Narasin relates the experience of one of his newest clients, 7-year-old, $20-million Active Apparel Group, a designer, marketer and supplier of women's, girls', men's and unisex activewear, sportswear, swimwear and accessories. He says that the public company - which sells its collections through exclusive licensing agreements under the Everlast, Converse All Star and MTV's The Grind brand names saw an 84 percent rise in its stock when it announced on Dec. 8, 1998, that it was going to establish a presence on the Internet. The firm saw an additional 857 percent increase the next day, and then climbed another 752 percent.

However, Narasin quickly stresses, "I don't think that's a logical, rational reaction. But it's an overly exaggerated example showing that investors will reward a company for doing the right thing, being competitive and planning ahead."

Actually, moving the stock, which has since settled down, wasn't Active Apparel's main goal either, acknowledges chairman and CEO George Q Horowitz, who emphasizes, "Going on-line wasn't even a question for us. It's the future. It's tomorrow's technology today! And we felt the timing was right."

Apparently it was. Horowitz offers that the company received 270,000 hits in December 1998, and more than 500,000 in January 1999.

Making it clear that his isn't an "Internet company" - it sells to 500 separate accounts representing more than 20,000 retail locations in the United States and Canada - Horowitz notes that Active Apparel's main focus continues to be on traditional outlets: department and specialty stores, catalog operations and better mass merchandisers.

As Horowitz describes his Web approach, "We have certain products that we are selling directly to the consumer, based on sizing and colors and availability for us to deliver. Additionally, we have a 'store finder' on the site where a person can punch in a zip code and find merchants. So, we're encouraging shoppers to go to the retailers where there is more product available. And retail reaction has all been very positive. Stores are happy that we're on-line. We're marketing our brands and name; doing contests; and offering tickets to sporting events. Merchants have no problem with us doing some limited selling, especially because we're not doing any discounting."

The chief executive states that going direct into the consumer market wasn't that much of a stretch for the company for two reasons: It has a replenishment program working on electronic data interchange (EDI), and it ships small orders, as few as six pieces, every day. He does observe that it's more costly to sell direct-to-consumer in terms of packaging, but because the merchandise is sold at full retail price, the margins are still "very strong."

In Horowitz' view, "There's going to be a tremendous increase percentage-wise in on-line selling for holiday '99. We're all laymen, but everyone is out there doing some testing and buying on the Net."

Naturally ebullient Narasin, who couldn't agree more, enthuses: "1999 is going to be the year. 1998 was incredible. It was the opening act of the most wonderful play I've ever been involved in."

Jules Abend is a Bobbin contributing editor and editor of Clarion Inc., a Howell, NJ-based international news gathering organization.

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