How Big is E-commerce? Depends.

How Big is E-commerce? Depends.

Every business wants to know where they stand in relation to the competition. Are we ahead of the pack or falling behind? Which areas of our business are doing better or worse than average? In our experience with the relatively new world of e-commerce, finding the answers to these kinds of questions is actually very hard. But a closer look across data sources highlights a number of benchmarks.

AmazoneBay, and other public e-commerce companies report earnings every quarter. These numbers give some indication of their growth and performance, but Amazon, for example, is famous for hiding lots of details in its reports, making sure the public never gets to look too deeply into things like their 3rd-party marketplace. Instead, they simply report general stats like “millions of sellers.”

To get a sense of where your business stands among the masses, it’s best to start with top-down metrics from research companies like Forrester and eMarketer. They produce generally accepted estimates on how big e-commerce is, how fast it’s growing, and what type of market share it takes from traditional retail. Another valuable source is Internet Retailer, which provides a deep-dive on the industry’s top 1000 e-commerce retailers. The report helps us understand at a microlevel the performance and characteristics of everything from public companies down to smaller retailers. We have access to revenue estimates, growth rates, and other interesting metrics for the top 1000 companies.

How do we get a sense of the statistics for the next 1000 retailers — numbers 1001 and beyond? That’s where things get a lot grayer.

From our experience, the 1001+ is where the most interesting things in e-commerce are currently happening. Starting this month and likely continuing over the next 6 to 12 months, the most hyped IPOs will be companies that serve as platforms to this ever-growing market.

Etsy kicks off the trend with its IPO, but Shopify and Big Commerce won’t be too far behind. Seeing metrics from these companies helps fill in the blanks a bit, but we still need help piecing together a large amount of e-commerce activity.

We’ve seen a few very interesting approaches to sizing up this market and trying to find benchmarks for great, good, and bad performance. In this post, we’re connecting the dots across all these different e-commerce data sources.

Let’s start from the top down. eMarketer projects that globally, e-commerce will eclipse $2 trillion by 2017. From 2013 to 2018, e-commerce is expected to grow 250%. According to this projection, China will increase its lead, becoming more than twice the size of the U.S. e-commerce market.

Although e-commerce will only represent 9% of the total retail market, in some countries, such as the United Kingdom, e-commerce will represent twice that much. In the United States, eMarketer predicts that e-commerce will grow from $300 billion to $500 billion between 2014 and 2018. In that span, apparel, home, and personal care could grow more than 50%. Here’s a look at the growth rates:

 

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The next question that interests us is how the top 1000 internet retailers perform. Consider this: The top 500 retailers have a fairly even split between web-only brands and those that encompass web and physical retail. Each has about 35% to 40% of the top 500 sales (catalog and brand manufacturers making up the rest).

However, for the 501-1000 group, web-only has a much larger share, representing 60% of this segment, and leaving only 20% for the web/physical combo retailers.

There are two ways to interpret this difference. The first is that smaller physical retailers lack the resources and know-how to tackle the web and become multichannel. We ascribe to the other interpretation: Smaller retailers have simply been slower in adding multichannel.

We regularly talk to retailers of this size who are only now making e-commerce a priority. As platforms and tools continue to get easier to use and more powerful for independent retailers, we expect the 500+ market to see a bigger insurgence from physical retail chains.

Our issue with the IR 1000 is that it overlooks many retailers, especially those below $10 million in revenue.  We know of many which are not on this list who should be. As you will see in the next section, the sub-$25 million revenue e-commerce market lacks quality statistical data. We think it’s much larger than most suggest.

When you get past the top 1000 e-commerce companies, we see evidence of the familiar long tail concept. While Chris Anderson wasn’t specifically talking about retail when he developed his long tail ideas, he has since written about the Maker movement and predicted the rise of smaller brands and makers.

While the Census, which is usually relied on for retail data, pegs the total number of e-commerce companies in the United States at 40,000, we know Shopify has over 100,000 stores on its platform alone. When you start to add up the stores on Magento, Woo Commerce, Big Commerce, Volusion, etc., the numbers creep toward a million.

Next, consider sellers on Amazon’s 3rd-party marketplace and eBay. There is obviously redundancy as sellers become more multichannel, but we clearly cross 1 million sellers. The longest, skinniest part of the long tail is the Etsy marketplace, with 1.4 million active sellers. Internet Retailers rolls up Amazon, eBay and Etsy as single stores, but many of IR’s other top 1000 merchants sell on those same marketplaces. The overlap becomes a major statistical problem.

The good people at RJ Metrics took on the challenge of trying to make some sense of this long tail. They cross referenced the IR 1000 with their own internal metrics, did some site scraping, and matched against the Alexa top 1 million sites. They reached several interesting conclusions.

First, e-commerce sites represent 10% to 12% of all Internet sites. Second, they made a guesstimate at the distribution of e-commerce revenue by each part of the market. They concluded the top 1% of E-commerce companies (top 10k) represents 34% of total e-commerce sales. The middle tier (10k-500k stores) represent 63% of revenue. The very long tail, sites 501k – 1m, represent only 3% of sales. Here’s the RJ Metrics estimate of the distribution:

While the RJ Metrics stats are the best effort we’ve seen to estimate this distribution, there are clearly some issues, including how to count multichannel merchants participating in larger marketplaces, as we’ve previously noted.

In all likelihood, we are undercounting e-commerce sales by smaller sellers. There are hundred of e-commerce platforms that aren’t closely tracked. Without having a measuring stick like physical retail’s sales tax, it’s very hard to accurately track this quickly growing market.

We will have more in this series that looks at metrics and benchmarks in e-commerce. We’d love to know what stats you are most interested in learning about — please let us know by commenting below.

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