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Urban Outfitters, Inc. (URBN), Nordstrom, Inc. (JWN), J.C. Penney Company, Inc. (JCP): When Dinosaurs Can’t Evolve, They Go Extinct

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Urban Outfitters, Inc. (NASDAQ:URBN)Between 1995 and 2013, global Internet usage rose from less than 0.5% to 39%. As a result of that growth, traditional brick-and-mortar retailers have steadily lost market share to e-commerce retailers like Amazon.com, Inc. (NASDAQ:AMZN) or eBay Inc (NASDAQ:EBAY). Retailers that could roll with the punches by increasing their online presence survived, and those that could not perished. Today, retailers must not only create engaging websites, but they must also address the rapid penetration of smartphones and tablets with well-designed apps.

Roughly 25% of smartphone users in America now use their mobile devices to shop online, according to research firm Forrester, and eMarketer stated that 11% of total e-commerce sales in 2012 came from smartphones and tablets – a number that is expected to double by 2017.

The United States, which accounts for nearly 34% of global e-commerce, is one of the fastest growing markets for online sales, thanks to a heavily wired population and rising discretionary income. Therefore, a digital rift has appeared between growing retailers and dying ones, and investors should recognize how certain companies create successful e-commerce initiatives, and how others fall flat. In this article, I’ll take a look at two big winners in e-commerce — Urban Outfitters, Inc. (NASDAQ:URBN) and Nordstrom, Inc. (NYSE:JWN) — and one huge loser J.C. Penney Company, Inc. (NYSE:JCP)–to see what defines a solid e-commerce initiative.

Urban Outfitters

Apparel retailer Urban Outfitters, Inc. (NASDAQ:URBN), best known for its quirky, kitsch print shirts and unusual gifts, has been one of the best performing stocks in the shaky apparel industry, rising 38% over the past twelve months. The company also owns Anthropologie, a casual contemporary female brand, and Free People, a Bohemian brand for young women. Over the past five years, Urban Outfitters, Inc. (NASDAQ:URBN)’ e-commerce revenue has grown at an average annual rate of 25%. Even when its industry peers complained about cold weather and a slowdown in consumer spending last holiday season, Urban Outfitters, Inc. (NASDAQ:URBN)’ direct-to-consumer channel (primarily comprised its online sales) saw 44% year-over-year growth.

Therefore, Urban Outfitters, Inc. (NASDAQ:URBN) is in a solid position to cash in on the growth in the U.S. apparel and accessories industry, which accounts for 20% of the country’s online retail market. eMarketer estimates that annual online apparel sales will double from $45 billion to $90 billion by 2016.

The key to Urban Outfitters’ growth in online sales started in 2009 with the launch of its m-commerce (mobile e-commerce) platform using Acuity Mobile’s eMAP platform. This started an organized roll out of websites, video and apps promoted through its print catalogs.

The company’s Free People app, which was only recently released on iOS, was downloaded 24,000 times during its first week and immediately accounted for 7% to 10% of the site’s online sales that week after logging 100,000 user sessions. The new app, which the company hopes will replace its three year old mobile website, is noteworthy since it allows users to upload photos of themselves wearing Free People apparel to share with their friends. That social aspect, which also allows users to rate each others’ photos, draws heavily on the appeal of social pinning and sharing site Pinterest. Last quarter, Free People accounted for 15% of Urban Outfitters’ total online revenue.

Encouraged by Free People’s success, Urban Outfitters intends to update its Anthropologie app later this calendar year. Thanks to its dedication to bolstering its online presence, Urban Outfitters, Inc. (NASDAQ:URBN) reported a 20% year-on-year increase in web traffic during the first quarter, which bodes well for the rest of the year and beyond.

Nordstrom

Another company that made a smooth transition into e-commerce is Nordstrom, Inc. (NYSE:JWN). The upscale department store managed to avoid the fate of J.C. Penney and Sears by investing $150 million in e-commerce infrastructure improvements last February. These improvements included a new mobile site and apps, a 50% increase in available online products, a 360-degree video for certain products, better recommendations and improved UI (user interface) features across the website.

As a result, Nordstrom, Inc. (NYSE:JWN)’s total revenue rose 12.1% year-over-year, and its e-commerce channel grew 37%. The company’s e-commerce channel sales came in at $1.3 billion, accounting for 11.9% of its annual top line. Mobile revenue came in at $260 million, representing 20% of the e-commerce channel. Nordstrom’s mobile app, which was launched in 2011, is currently the third highest rated retail app in the Google Inc (NASDAQ:GOOG) Play Store. The app can locate nearby stores, check the in-store availability of desired products, scan bar codes in stores, track in-store events, and create and share wish lists with friends.

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