Online retail is highly profitable. You need not look any further than (Nasdaq:AMZN) for confirmation of this fact. Yet so many retailers seem to be missing the boat on this lucrative piece of the retail pie. Real estate is expensive, making online sales vital to the success of any retailer. I'm sure you've heard this speech many times, but you probably aren't familiar with the term "online sales ratio." Don't worry, I made it up. Essentially, it's a retailer's online sales growth in any given period added to online sales as a percentage of total sales. The end sum should be as high as possible. What I'm trying to illustrate with this ratio is that retailers who are simultaneously increasing online sales quarter-to-quarter and also as an overall percentage of total revenue will be far more profitable in the long run. Those who don't won't. So what's your favorite store's online sales ratio? Your investment success depends on it.
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Five Retailers - Online Sales Ratios - Second Quarter

Company Online Sales Online Sales Growth Online Sales as % of Total Sales Online Sales Ratio
Kohl\'s (NYSE:KSS) $88M 33% 2.3% 35.3
Williams-Sonoma (NYSE:WSM) $209.6M (20.1%) 31.2% 11.1
Gap (NYSE:GPS) $224.0M 17.3% 6.9% 24.2
Cabela\'s (NYSE:CAB) $226.2M (6.2%) 36.2% 30.0
Nordstrom (NYSE:JWN) $179.0M 3.5% 8.3% 11.8
Note: Cabela\'s numbers from Q3 ended September 26, 2009.

Online Sales Still Booming
Three pieces of information recently caught my attention. The first was survey findings from's 2009 report on the state of online retailing. It found that 57% of online retailers were more profitable in 2008 than in 2007. I dare you to find that same figure from traditional bricks-and-mortar retail. The second finding was that Forrester Research predicts online retail sales will grow by 8% this holiday season while overall sales decline in the low-single digits. That's quite a contrast. I suspect Amazon bought at just the right time. Its holiday business should be hugely profitable. Lastly, 27 companies achieved online sales of $1 billion or more in 2008, up from 21 in 2007. That's almost a 30% surge. With all of this in mind, do you still doubt that online sales are for real?

Retailers Burying Online Sales Stats?
With the profits to be made from online retailing, in this economic climate you'd think retailers would be telling anyone who would listen how well they're doing online. In Macy's (NYSE:M) second quarter 10-Q, it mentions a 9.4% increase in its internet business, but fails to disclose the actual number. Why tell us this fact if you're not going to give us the rest of the story? Here you have a great result and I'm left thinking they're hiding something. That's not the way to run an investor relations program. Greater transparency usually translates into increased investor interest, regardless of whether the facts are negative or not. Macy's should do itself a favor and open the lines of communication further. Otherwise, they'll continue to turn off investors.

Macy's Isn't The Only One
Try finding the sales figure for Wal-Mart's (NYSE:WMT) online business in the second quarter. You won't be able to because it doesn't exist. If J.C. Penney passed the $1 billion mark in 2006, you'd have to assume Wal-Mart did as well. The dollar amount is insignificant to its overall business. Having said that, it doesn't mean it isn't important for investors to see how the Wal-Mart brand translates online. Multi-channel retail is the wave of the future, and if I'm not getting all the facts about Wal-Mart's business on a quarterly basis, I don't see how I can invest with them. Especially when companies like Cabela's are breaking down their online sales into subcategories. There's really no comparison and, frankly, even if it's in the conference call transcript, why should I have to hunt for it.

Bottom Line
The beautiful thing about the online sales ratio is that even when revenues are declining, as is the case with Cabela's, the overall prognosis for the company is strong because of the profitability of those sales. In the nine months ended September 26, despite its direct sales being $277 million less than its stores, Cabela's operating income was almost $4 million higher. The 480 basis point difference in operating margins will come in handy once the economy recovers. Until then it provides a nice cushion. (For more, see Shopping Online: Convenience, Bargains And A Few Scams.)

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