Niche Internet retailers hit their stride, selling everything from shoes to diamonds

Wednesday, February 4th 2004, 12:00 am

By: News On 6

NEW YORK (AP) _ Who would have thought that online sites like Zappos.com, which sells $350 designer shoes and other footwear, or Bluenile.com, which sells expensive diamonds, would thrive in the aftermath of the dot-com bust?

These and other Internet-only retailers once deemed unlikely to succeed in cyberspace are outpacing offline rivals in sales gains. And a robust holiday season showed that although they each tend to focus on a narrow retailing niche, they're growing at a faster rate than online purveyors of books and CDs.

They're the late bloomers of online retailing, boosted by consumers' increasing comfort with Web buying.

``They made it through the rough patch, and they're hitting their stride,'' said Kate Delhagen, an analyst at Forrester Research. ``Books, music, hardware were the first to go. Now, apparel, home goods and others are now taking off by rockets.''

These niche categories, from shoes and furniture to diamonds, are expected to keep the online sales momentum going.

At Bluenile.com, customers can build their own engagement rings, choosing among 80 different settings and 32,000 different single diamonds, ranging in price from a few hundred dollars to $440,000 for a nine-carat stone. At Zappos.com, offerings range from dressy $350 Bruno Magli pumps to more casual $39.95 lime green Pro-Ked canvas sneakers.

Shopper Heather Govern said she made three-quarters of her holiday purchases online, a big change from 2002.

``I like going into malls, but sometimes I'm just too busy,'' said Govern, who bought handbags on eBags.com and Ashford.com. She expects to do as much as 50 percent of her shopping online this year.

Steve Infanti had only purchased commodities like tires online, but decided to try shoes recently after having no luck finding a specific style of dress shoes on land. The Wheeling, W.Va., resident ended up having a good experience with a site called shoes.com.

``If I know the shoe I'm looking for, I'll go online, rather than traveling to three shopping malls,'' Infanti said.

Chuck Davis, CEO of BizRate.com, a comparison shopping site that also tracks sales at 2,000 e-commerce sites, believes this past holiday season was a breakthrough for some retailers thanks to a surge in female shoppers. He estimated that 62 percent of the online purchases in the fourth quarter were made by women, up from 52 percent a year earlier. For all of last year, 60 percent of purchases were made by women, compared with 55 percent in 2002.

Many of these online retailers, which tend to be privately held, posted double-digit holiday sales gains that beat their forecasts, and they also expect big gains in 2004. That compares to modest increases for their offline rivals.

Bluenile.com posted a 65 percent increase in fourth-quarter sales, while full-year sales rose 79 percent to $128 million, CEO Mark Vadon said. The company, which reports it is profitable, declined to project sales for this year. Meanwhile, store-based Zale Corp. posted a 4.3 percent increase in total revenues for November and December.

Zappos.com, which reported better-than-expected holiday sales, anticipates business in 2004 will double to $140 million, according to Nick Swinmurn, founder and chairman. In 2000, its first year of business, sales were under $2 million.

EBags.com, which sells luggage and handbags, expects a 60 percent jump in sales this year after a 60 percent rise in fourth-quarter revenue, spokesman Chris Seahorn said. The company has been profitable for more than a year and a half.

There is plenty of room for online retailers, including these niche merchants, to grow. Delhagen of Forrester, an Internet research company in Cambridge, Mass., estimated online retail sales in 2004 will exceed the $123 billion goal originally projected, based on strong holiday sales. That's up from last year's $100 billion.

Meanwhile, Jupiter Research forecasts U.S. online retail sales will reach $65 billion in 2004, and continue to expand through 2008 to top $117 billion. Jupiter's results exclude travel and auction sites.

The niche retailers said they plan to expand their merchandise offerings. Bluenile.com is increasing the kinds of products that consumers can customize to include three-stone rings and earrings.

Zappos.com, profitable since late 2002, recently added a children's shoe page. The company hopes to reach its $1 billion sales goal by 2010 by expanding into handbags and other accessories.

The company, which offers consumers eight different angles of each shoe, ``can't completely replicate'' the experience at a brick and mortar store, Swinmurn said. But it can differentiate itself by its vast offerings _ it currently offers 10,000 different shoe styles and carries 175 brands.