The dizzying pace at which e-tailing has grown and changed over the past five years has made it difficult for even the most careful industry-watchers to keep track. Only a handful of Internet-only retailers, commonly referred to as "pure plays," report their sales publicly, while most bricks-and-mortar retailers that have gone on-line don't segment their e-tailing business.

The most illuminating way to measure the impact of Internet retailing on traditional stores and direct marketers, it turns out, is to talk directly to mouse-click shoppers. So STORES Magazine, with support from VeriFone, recently commissioned a groundbreaking survey designed to compile a list of the top 100 largest e-tailers, and to measure their impact on total retail business. The statistics on e-tailers cited here are based on information provided by those in the best position to know - their customers.

Over a four-week period in July and August 1999, Leo J. Shapiro & Associates, a Chicago-based market research firm, surveyed more than 1,300 on-line shoppers, who identified more than 700 websites they had shopped at in the past 12 months. A nationwide cross-section of Internet users was interviewed by phone, and on-line surveys were conducted with buyers via the fastWEB database.

The survey is intended to measure where on-line shoppers have actually made purchases in the last year, how much they spent over a 12-month period and how pleased they were with the experience. The websites are ranked according to estimated consumer sales, a figure compiled from a national survey of Internet buyers.

It's important to keep in mind that the estimated consumer sales represents that amount of business taken from traditional bricks-and-mortar and catalog merchants - not the total sales of the company. Total estimated consumer sales for the top 100 retailers amounts to $7.6 billion.

In all, this one-of-a-kind survey produced some eye-opening findings.

PURE PLAYERS
A quick study of the VeriFone Top 100 Internet Retailers list shows an enormous concentration of businesses that were born and raised exclusively on the Internet, including No. 1 eBay, an on-line auction site. Nearly half of the companies ranked on the list consider e-commerce their primary channel, and all can chronicle their brief selling history in five years or less. The implications of that finding reflect not only the growth of this digital medium, but also the ease of entry and the desire to circumvent traditional retailing paths.

Among the Internet pure play businesses, one-third sell computer hardware, software or both. The remainder have ventured into a broad array of product categories, including books, music, groceries, toys, garden supplies and fragrances. Industry observers advise that this is only the beginning. They predict that any item a customer can purchase today by walking into a store, picking up a telephone or manually filling out an order form will ultimately be available to on-line shoppers.

There are no diamond retailers or furniture-selling sites in the current Top 100 Internet Retailers, for example, but e-commerce aficionados are already purchasing engagement rings and bedroom furniture using the click-and-shop method.

George Rosenbaum, chief executive officer of Leo J. Shapiro & Associates, credits the Internet with reinventing American business and reviving the American dream. "Anyone big or small can go into business via the Internet - and they are," says Rosenbaum, who had to whittle down a list of more than 700 websites mentioned by shoppers. "America was once a nation of small retailers, but over the last 20 years in particular this industry has become dominated by multi-billion dollar retail corporations building multi-million dollar stores.

"The Internet provides an opportunity for those with an irrepressible entrepreneurial sense to get in on the ground floor of something that will grow to be quite large," Rosenbaum continues. "It's extremely difficult to start out as a bricks-and-mortar retailer today and it takes years to build the critical mass and the broad exposure that e-commerce retailers can potentially achieve on-line in a matter of months."

The fact that anyone with a dream and a modicum of ingenuity can start an e-commerce business in a very short period of time implies that this Top 100 list could look very different six months from now. While the Top 10 may be reasonably well entrenched, the world of electronic commerce is changing faster than any other major part of the economy. Some of the retailers on the current list will be weeded out, the victims of sloppy customer service, poor fulfillment or lack of interest, while others will grow exponentially.

Drugstore.com is a perfect example. Although drugstore.com is only seven months old, it is ranked No. 80 on the list. While the backing of several Internet heavyweights has helped to propel the meteoric rise of this website, which is 45 percent owned by Amazon.com, it remains an impressive achievement given the brand recognition of established drug store retailers, such as Walgreen, that are also engaged in e-commerce.

Another substantial finding of the study is that the death of bricks-and-mortar retailers at the hands of click-and-mouse competitors has been exaggerated. Twenty-one of the websites ranked in the Top 100 are traditional retailers at heart, while 25 of the sites cited earned their stripes as catalog and direct mail operators.

Several of the traditional merchants that won kudos from on-line shoppers are relatively new players in the digital world. Gap, Wal-Mart, JCPenney, Sears and Nordstrom quickly realized that by marshalling their fundamental strengths, including merchandising expertise, precise inventory management, efficient distribution and strong brand recognition, they could become a force to be reckoned with on the Internet.

Traditional merchants also have a powerful trump card, which they've learned to play deftly. In their stores, on their shopping bags and sprinkled liberally on direct mail communications, bricks-and-mortar retailers have stamped their Internet addresses. Although there is no way to measure the impact of that exposure, it's clear that messages that get reinforced regularly get attention.

Bricks-and-mortar retailers, catalogers and multi-channel store operators are also well equipped to provide customer service and attention throughout the purchase. Catalog operators and some of the large chains that have entered the fray, including Macys.com, Eddie Bauer and Nordstrom, already have established call centers and sophisticated fulfillment systems. Meanwhile, customer service and fulfillment remain hurdles for many of the pure plays that cut their teeth on the web.

AUCTION APPEAL
EBay sits at the zenith of the Top 100, with 12.5 percent of web buyers and $1.1 billion to $1.3 billion in estimated consumer sales of goods that could be purchased from a retail store or catalog, for the 12 months from August 1998 through July 1999. Ubid is ranked No. 11 on the list and First Auction holds the No. 13 spot. In all, there are six on-line auction sites counted in the Top 100, and the on-line shoppers surveyed claim to have spent heavily over the last year. (Those six do not include sites where auction venues are secondary, such as Amazon.)

At eBay, customers report spending an average of $492 from August to July; Ubid shoppers plunked down an average of $654 over the same time period. In all, customer sales at auction venues are estimated to be in the range of $1.4 billion to $1.7 billion. To put that figure in perspective, estimated spending is $1.1 billion to $1.3 billion for the four book retailers on the list and $400 million to $545 million among the nine apparel sites ranked.

Once dismissed as a passing fad, on-line auctions are clearly not a trend that will fade with time. Auctions have become positive drivers of e-commerce and a new vehicle for conducting global business. The sales figures imply that consumers see auctions largely as an alternative to retail stores. These sites have quickly established a new medium and are reshaping the price/value equation in the mind of the consumer.

With auctions driving competitive pricing, retailers will find it harder and harder to hold fast to an everyday price - low or otherwise. Rosenbaum sees it as part of the evolutionary shift in pricing. "Go back 30 or 40 years and you'll find that the price the merchant put on a product was the price it sold for. In the '60s and '70s, discounting and off-price retailing came into vogue and systems were set up to sell items for less. Today, on-line auctions are removing price altogether. The price has to be discovered through collective bidding. Now the game is fair market value, and retailers are going to have to learn how to play."

There is a sociological factor in play here as well. While retailing tends to be interactive and social, on-line auctions are conducted in total anonymity, and shoppers appear to be increasingly comfortable with that idea. They're using the Internet to gather information and whether they make a purchase on-line or not, they are often more knowledgeable about a product than a sales associate on the selling floor. On-line auction shoppers are anonymous and empowered by knowledge - a powerful combination for the buyer and a potentially intimidating one for the seller.

Retailing has shifted from a time many years ago, when interaction was essential, to a self-service model that dominates most of the industry today. Retailers have been preparing consumers for the prospect of not receiving any help for some time now, for example, in the case of supermarkets that are experimenting with shopper self-scanning. Viewed from that standpoint, it is not surprising to see three auction sites among the top 13.

WORDS AND MUSIC
Books and music, which have been counted among the top selling products sold via the Internet in numerous surveys, continue to be an enticing draw for on-line shoppers. The Leo J. Shapiro study finds, for example, that four of the six websites attracting the highest percentage of web buyers designate books and CDs as their core offering.

One-third of all web buyers surveyed report shopping at Amazon, while 10 percent have made a purchase at BarnesandNoble.com. Among music retailers, CDNow is shopped by the greatest percentage of on-line shoppers, 8.7 percent, vs. 3.7 percent at Columbia House and 2.6 percent at BMGMusic.

Although books and music are obviously much lower ticket items than the computer hardware and software and collectibles sold by several of the other websites that lead the list, on-line shoppers' combined spending for books and music is estimated to be between $1.4 billion and $1.7 billion.

Judging from figures compiled here, the highly publicized battle between Amazon.com and Barnesandnoble.com is little more than a heated skirmish, with Amazon clearly holding the upper hand. Still, the Internet efforts of Barnes & Noble, the nation's largest bricks-and-mortar bookseller, cannot be underestimated. In price and service, B&N has attempted to go toe to toe with its chief competitor and made tremendous strides with its e-commerce initiative, especially considering that Amazon had a two-year jump on the digital channel.

The prowess of Amazon.com has reached legendary proportions, and the growth of the company continues to snowball as the Seattle-based e-tailer extends its reach into new product categories, including toys, electronics and on-line auction selling. Second only to eBay in estimated consumer sales and the uncontested champion when it comes to attracting paying customers, Amazon.com is the Internet's poster child for success.

Kay Dangaard, chief spokeswoman for Amazon, attributes the company's success to its obsession with providing a positive and pleasurable customer experience. "We aspire to be the most customer-centric e-tailer shoppers will visit. From the time a shopper clicks on our website until the package is opened, the experience of shopping is the only thing that matters," stresses Dangaard. "Unless you realize that the balance of power shifts from the merchant to the consumer on-line, you're not going to succeed.

"In the physical world, if you've had a bad customer experience, you may tell four or five friends over time. On the web, a shopper can shout out the details of their bad experience to thousands of people at once. We believe that if we give shoppers a great experience, they will become Amazon evangelists," she says.

Dangaard is quick to defend the company on the subject of profitability, which has largely eluded it and other Internet merchants. "This is critical category formation time and we're concentrating on building our site and extending into new product offerings. Looking for short-term profits at this juncture would be a mistake," she contends, noting that the focus is on building an enduring and important company in the long term.

While Amazon would appear to be the runaway leader among booksellers on-line, there's a real horse race going on among music merchants, three of which are ranked in the top 25. CDNow (including recently acquired Music Boulevard) leads the pack in terms of percentage of web buyers and estimated consumer sales, with 8.7 percent of shoppers ringing up sales of between $125 million and $175 million.

Jockeying for position just a few paces back are Columbia House and BMG Music. Although the two competitors have a smaller percentage of buyers, those who do make purchases are spending more yearly than on-line shoppers at CDNow. The annual customer expenditure of Columbia House shoppers is $134; at BMGMusic it is $156, compared with $115 at CDNow.

COMPUTERS AND CLOTHING
Computers and related products remain the most sought-after product categories on the Internet, with 27 e-tailers having computer hardware and/or software as their core offering. Dell, Buy.com, Onsale.com, Gateway and Egghead, stacked one on top of the other in the rankings, are obvious frontrunners. But some interesting differences surface.

More on-line shoppers mentioned Buy.com as a website where they have made a purchase, but customers who frequented the site actually spent less there. Not surprisingly, Dell and Gateway are high on the Top 100 list in terms of mean customer expenditures, with Dell customers spending a mean of $2,535 and Gateway shoppers ringing up a bill of $1,623 over 12 months.

Onsale.com may be the dark horse worth watching. With more shopper mentions than Dell and Gateway and a mean yearly expenditure of $791, Onsale.com could plunder market share while attention is focused elsewhere.

It appears that Egghead executives made the right call when they elected to close their physical stores and focus their attention on web selling. Egghead, ranked No. 7, lured 3.3 percent of the on-line shoppers surveyed to its site and rang up estimated consumer sales of $150 million to $200 million. The figures hold even more weight because Egghead sells primarily software, which is a lower cost item than computer hardware.

The strong showing posted by e-commerce computer resources is not surprising. They were the first to stake a claim on-line, and they've remained leaders in the digital world. The fact that consumers need a computer to access the Internet will continue to stoke sales in the category, but dramatic growth may be a thing of the past for this mature group.

Meanwhile, apparel and broad selection-type retailers are showing that they can successfully make the transition to the Internet channel. Three major retailers that traditionally rely on real estate to grow their business appear in the top third of the list, with Gap No. 19, Wal-Mart No. 20 and JCPenney No. 28. The research clearly shows that on-line shoppers gravitate to recognizable and trusted brand names and that traditional stores with established brands, such as Macy's and Nordstrom, have a key advantage when they go on-line.

Though Gap merchants aren't saying just how well www.gap.com is performing, Zona Research recently reported that the Gap website produces more volume than all but one of the company's bricks-and-mortar units. The STORES survey found that on-line shoppers spent an average of $375 at Gap over the last year, in part because of the site's interactive technology, which invites web shoppers to mix and match outfits with a click.

Companies that made a name by selling apparel through catalogs appear to be very successful thus far at transitioning their business to the web. Lands' End, Spiegel, Eddie Bauer and L.L. Bean all rank in the top third of the chart, with Lands' End leading the pack. Ranked No. 16, Lands' End attracted 2.4 percent of the web buyers surveyed and tallied estimated consumer sales of $90 million to $110 million.

Missing from the chart, however, are any web-only apparel players. Unlike books, music, toys or groceries, where one or more entrepreneurs have been able to refashion the category into a successful e-commerce business, apparel remains a product for which brand recognition and trust are the tickets to entry on the web. The start-up barrier is greater for unbranded apparel than for other product categories.

Widely held opinions about shoppers' reluctance to purchase career apparel, tailored clothing, social occasion garb, swimwear and other difficult-to-fit items appear to have some validity, according to the STORES findings. Looking at the apparel retailers that made the chart, virtually all are known for selling looser-fitting casual sportswear. The need to touch the fabric, feel the quality and check the fit before buying remain key components of the shopping experience that cannot be replicated on-line.

The success of traditional retailers and catalog operators on the web will be measured to some degree by their ability to integrate the various channels in which they sell product. In the mind of the consumer, www.jcpenney.com is no different from the JCPenney's at the mall, and shoppers expect to be able to return something purchased on the web to the store.

POTATO CHIPS AND PORTALS
Among the more surprising findings in Top 100 Internet Retailers survey was the solid showing by on-line groceries sellers. Peapod came in at No. 22, while NetGrocer is No. 81.

While skeptics have questioned whether shoppers will want to click their way through the weekly food list, many consumers appear to be willing participants. The first attempt at switching from pushing a cart down a grocery aisle to clicking a mouse through a virtual grocery store is time-consuming, but it tends to be a one-time event. Perks such as having that list saved and being able to reuse it for future orders offer time-saving dividends that appeal to consumers.

The survey findings indicate that the monthly on-line order at Peapod is $171, or $2,056 over a 12-month period. At NetGrocer, shoppers claim to have spent $373 over a 12-month period, but may not have been signed up for the full year.

While many shoppers may prefer to pick their own melons or steaks, the click-and-shop method works just fine for cereal or paper towels. The trick for these on-line grocers may be to get enough loyal shoppers to spend $2,056 a year with them. Then it won't matter if old habits - like stopping at the local grocery store for dinner and fresh milk on the way home from work - are hard to change, because on-line grocers will have gotten their piece of the action.

Another factor in play is the role of demographic changes. As the proportion of Americans age 65 and older continues to swell, so too will the profits of businesses that find ways to serve this savvy group, with its tremendous purchasing power.

Internet portals know a thing or two about power. Defined as a website or service that offers a broad array of resources such as e-mail, forums, search engines and an on-line shopping mall, portals have been the objects of a great deal of attention this year.

Only two genuine portals are ranked in the Top 100: AOL (No. 10) and Yahoo! (No. 12). AOL boasts a higher percentage of web buyers, 3.7 percent, vs. 1.5 percent for Yahoo! Even so, estimated consumer sales for both portals range from $100 million to $150 million. Comparing shoppers on a one to one basis, those who made purchases at Yahoo! in the last 12 months actually spent more than AOL shoppers.

Both command a tremendous share of Internet users and are established in the minds of consumers for certain strengths. AOL is thought of as the shopper's portal, while Yahoo! specializes in personal news and finance. What makes these portals so strong is that the brands are stronger than their component parts and woven into every aspect of user activity. CompuServe, ranked No. 31, was one of the first portals and is now a part of AOL.

Internet experts predict that by early next year, there will be only a handful of top Internet portals entrenched in consumers' minds, including AOL and Yahoo! Retailers seeking to reach the widest possible audience have begun to seek out ways to align themselves with these portal sites as a vehicle to advance their marketing and communication strategies.

SHOPPING EXPERIENCE
Shopping on-line is still a relatively new experience, with its own developing set of criteria. Shoppers judge their on-line shopping experience by whether or not items are in stock, if they receive an order confirmation, if the items are delivered when promised, and if they feel good about the price. They tend to evaluate the website a bit differently. Was the site easy to navigate? Were the photos easy to view or enlarge? Was the payment process and credit approval a simple procedure or a major headache?

Shoppers surveyed by Leo J. Shapiro were asked to rate both their shopping experience and the website for each of the on-line stores where they made a purchase. A scale of 1 to 9, with 9 being the highest rating, was used.

Over all, shoppers had more favorable opinions of their shopping experiences than they did of the websites. Shoppers rated 18 of the Top 100 websites 8.5 or better when they were asked to judge their shopping experience. But only eight e-tailers received ratings of 8.5 or better on their websites.

On-line shoppers gave Compaq, Nordstrom, Lands' End and Drugstore.com high marks when asked to evaluate their shopping experience. Apple, 1-800-Flowers, Beyond.com and Hammacher Schlemmer, by contrast, are near the bottom of the list with ratings of 6.9 and below. Websites that received high marks from on-line shoppers included Godiva, Peapod and Nordstrom. E-commerce sites given poor ratings (6.9 and below) included Wal-Mart, Beyond.com, Fingerhut and Microsoft.

An overview of the shopping and web experience ratings produces some interesting findings. For starters, on-line shoppers seem happier with their shopping experiences at pure play e-commerce sites. Six of the top sites are pure plays and five are manufacturer sites. The success of manufacturers may be closely tied to their typically keen understanding of their customers and what they want to buy.

Websites visited by a higher proportion of shoppers received somewhat lower grades, which may be due to the fact that multiple shopping experiences translate into more chances for something to go wrong. Amazon, which is routinely praised by shoppers, received a rating of 8.3 for the shopping experience and 8.2 for the web experience. Other e-tailers that ranked near the peak of the Top 100 chart but also received mediocre ratings included eBay, which garnered a rating of 7.9 for the shopping experience and 7.8 for the website, and Dell, which received ratings of 7.9 and 7.6, respectively.

Shoppers may be rating the websites with a more critical eye simply by virtue of having been exposed to so many e-commerce sites. Though shoppers are not buying a lot on-line, they are doing plenty of browsing and have developed a considerable level of sophistication. The majority of consumers made comparatively fewer purchases, which may explain why the shopping experience and the website ratings are generally higher.

In the physical world of retailing, as stores become more alike, success goes to the competitors that can break out of the mold. The same theory applies to websites; on-line shoppers will reward websites that create an experience and engage them in a personal way. Retailers that simply transfer thumbnail photos from a direct mail piece to their website can expect shoppers to go in search of a more exciting shopping experience.

It's interesting to note that bricks-and-mortar retailers have additional resources to draw on over pure play e-tailers when it comes to website presentation and the overall shopping experience. With years of experience in in-store merchandising and store design, at least some of that expertise can be tapped as they develop their websites. But computer manufacturers generally have less merchandising experience, which may explain how a company like Gateway ends up with a mean website rating of 6.6.

NOTABLE ABSENCES
Another significant aspect of the Top 100 Internet Retailers survey is the conspicuous absence of a number of e-tailers that have received considerable media attention.

There are, for example, no greeting card companies on the list, and both office supply merchants and electronics retailers are in short supply. Part of the explanation for this might be that the survey measures on-line purchasing, rather than site visits. In the case of an e-tailer like www.bluemountainarts.com, the site might receive thousands of hits per day, but how many visitors are actually buying, and how many are taking advantage of free e-cards? Staples and Office Depot are making names for themselves on the web, but a sizable share of the business to this point is coming from business to business sales, which were not taken into account in this survey.

Electronics merchants such as Best Buy and Circuit City also didn't make the Top 100 listing, suggesting that the electronics-heavy on-line auction sites are nibbling at their business. Others are encroaching on that territory as well, including Amazon. Unless electronics retailers find a way to jump start their e-commerce efforts today, they run the risk of finding that there's no room for them tomorrow.

The Internet Top 100, the first of its kind, is a list that is likely to be totally transformed within six months. Virtually every analyst who follows this burgeoning channel is predicting that the upcoming holiday season will be a watershed for Internet commerce. Shoppers who never bought before will dabble in this new medium, while those who have had positive shopping experiences will spend more freely and be more experimental than they were a year - or even six months - ago.

View partial ranking here.

© 1999 NRF Enterprises, Inc.