Knowledge@Wharton's Many-stop Shopping? How Niche Retailers Are Thriving on Internet 2.0 covers the growth of online niche retailers. Key quote:
"A decade after pets.com and a string of other early Internet specialty retailers collapsed, a new wave of start-ups -- enabled by the power of cloud computing, advanced delivery systems and deep social relationships with customers -- is shaping e-commerce."
The main driver is the growing number of people who are comfortable making online purchases. According to the article, which sources eMarketer:
87.5% of U.S. Internet users over age 14, or 178.5 million people, will browse or research products online this year. Of that group, 83% will make an Internet purchase in 2011.
One quote I found very interesting is on niche companies understanding they are speciality firms, and what happens when they try to compete head on with larger retailers:
"Unfortunately, too many small brands don't view themselves as a specialty," Fader points out. "They think they can compete with the big guys." As a result, the company spends too much on broad-based advertising and other attempts to drive scale. Ultimately, Fader says, they "get crushed.... If you admit that you are a small brand, go after the specialty angle and say, 'People will buy us only occasionally" -- and you keep costs down and keep the message focused -- then you can be okay."
One not so good impact of the success of online retailers is the impact they are having on traditional retailers and local governments that look to sales taxes to support their communities.
The Wall Street Journal's Failed Malls Leave Cities in the Lurch covers the growing problem of declining sales tax revenue due to falling sales by traditional retailers. Key quote:
"That has city leaders from Texas to California waking up to the likelihood their sales-tax decline isn't just a result of the bad economy. Instead, it is problem that will persist after a recovery, as demand for retail complexes is whittled by online shopping and the waning popularity of the big-box store selling everything from groceries to electronics."
According to the Department of Commerce, U.S. online e-commerce sales totaled $165.4 billion in 2010. But this is still only 4.2% of total U.S. retail sales.
As online sales continue to grow, the impact on traditional retailers and sales tax revenue will also grow.