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Loading ...With the struggling economy, I hear a lot of independent bricks and mortar stores saying they need to build an online store. The image is millions of people perusing your products, shipping to exotic locales like Pacoima, Paris or Peru. A website delivering the amount of customers you lost in the last two years with low overhead.
Here’s the reality: major brands are segmenting visitors to their websites by person, they are tracking where you the customer went to customize their banner ads and even which page you will see when you return. They have a valuation for each consumer relative to each SKU, they know how the consumer will react, to which offerings and when, how fast they’ll shop and what % they’ll have to eat in returns.
They can connect the dots of a customers’ age, past purchases with other online sites, household income and spending patterns. They know what the consumer zoomed in on, what they reviewed, with whom they have social media influence, what they researched on a page but purchased on another. They can track back their online wardrobe purchases from the past six years and build a virtual closet of what the customer owns.
They know who the bargain hunters are – like a parched woman in the desert dying for a drink, the die-hard bargain hunters will wait until the price drops to what they will pay – they know they are in the distinct minority and make up those losses elsewhere.
They know who the high priced affinity shoppers are - the 5% of people making 20% of purchases. Because of that, they can micro-target whoever they want with a customized list of products suited to that one consumer.
How do I know this? At the National Retail Federation’s Big Show, Nielsen said they track 5.55 million transactions a day worldwide, that they slice, dice and resell that information to major online sites.
Here’s the point, if you can’t be as committed as Amazon, Best Buy, Toys R Us, and the big boxes to deliver a seamless experience, then don’t tip-toe around it. Heck, even Sears which is dying as a retail bricks and mortar store, is committed to capturing online biz with their new iPhone apps as well as their marketplace site , then put your money elsewhere.
Oh and one more thing: many of these big guys are selling merch online at a LOSS to build fans. 
Take a look at January’s price for Sarah Palin’s Going Rogue. List price was $28, Amazon had it for $9.98. That’s probably $5 below what the average small bookstore would pay for it exclusive of shipping.
Just how much profit would you have to make to recover the loss you would incur if you matched Amazon’s price? Since a great independent business only keeps about 3 cents out of every dollar, one book at that price could take $150 in profitable sales to make up for that one discount.
Its those kind of decisions you have to be able to make in your bricks and mortar and online store. I cover more of the financials in my new book.
The easy money online has passed. If you want to have an online store presence, you need to invest the money to be at least as good as the big boys. Just like an independent coffeehouse has to be at least as clean as the local Starbucks with a speed of service no slower, with a product at least as fresh, you have to meet the competition’s standards just to be in the game.
Don’t pay attention to these harsh web realities of 2010 and you’ll continue to discount your goods online, upsetting your in-store customers, robbing your store of cash flow and losing focus to what really can move profits – your interactions with customers on your sales floor.
If you can commit to making your site vibrant, not just a discount place but also offering unedited reviews of your products, number of items in stock and online chat – have at it! A better use of your money is to make your website a draw to customers, then give them a reason to come into your store so you can standout, sell more and develop a relationship built on something other than low price.
What say you?
[...] This post was mentioned on Twitter by BobPhibbs, Dancing Bear Toys. Dancing Bear Toys said: RT @TheRetailDoctor: Why you should abandon having an #online retail store http://bit.ly/6ZX4i4 [whew! what a relief!] [...]
Bob,
Thanks for this post and great perspective on the whole online concept. I’ve been dragging my feet on going online for some time now because it just didn’t seem right. You helped me crystallize those feelings.
Phil
Hi Phil, I think a lot of toy retailers have been sold a bill of goods about online stores and wanted to see what the competition is up to. Glad to help!
Bob,
You make some very good points in your article. Your assessment of just how far the technology has evolved in regard to demographic and even “psychographic” profiling of the consumer is spot on. However….
I wholeheartedly disagree with your blanket statement to retailers (independent or otherwise) that they should completely forego an online eCommerce presence. If you will allow me to loosely quote your idea: “if you can’t be as committed as….then put your money elsewhere”; I feel that this statement should be highly tempered.
You might be correct if you are assuming that your audience is planning on investing millions of dollars into their online store and are expecting a huge ROI, but that is just not the case for most of the ones I know. I just happen to specialize in helping independent retailers (shameless plug) who on average have brick and mortar stores that generate about $350k to $1M in gross sales. With a minimal investment, retailers in this category can do $300 to $500K online to compliment their B&M and sometimes even do it more profitably (Their website doesn’t call in sick, doesn’t need health insurance etc.)
As a matter of fact a great online presence in my opinion actually enhances the credibility of the retailer in the eyes of the consumer. You are correct in fact the site does need to be engaging, interactive and current. You are dramatically overestimating how difficult and expensive those attributes are to accomplish. Social Media Marketing is perfect for brand building and establishing a good rapport with your clientele and for the most part it’s free to use channels such as Twitter and Facebook to drive traffic to your site.
Anyway; to summarize the main point of contention in my opinion compared to yours, you are correct if you are addressing someone that owns a chain of 30 electronics stores that might need to spend a million dollars in establishing his online store. If his major competitors are the Bestbuys and Conn’s of the world he is most likely making a bad investment. However; you are totally incorrect if you are speaking to the guy that owns 3 shoe stores, each of which are doing $300K in volume. If you think for one minute that that guy would not jump at the chance to have an online store that did the same amount as one of his “brick and mortars”, for an investment of just a few thousand dollars, then you don’t hang with the same crowd of independents that I do.
Best regards,
Mike
Thanks for taking the time to comment Mike. If you’re talking taking a catalogue they already mail out, putting it online as a shopping fulfillment, that’s fine. But thinking they can compete profitably without any investment is a fools dream. While a website doesn’t call in sick, many small retailers signon with Amazon agreeing they will ship if they get an order up to 10pm that day. Who do you think ships it out? The owner. And for what? If you factor in all of the time and money it often is a distraction from the main business. A guy with 3 shoe stores is somehow going to compete with Zappos and Amazon? Independent retailers should be Tweeting to build brand because its easy? We agree to disagree but thanks for stopping by and letting me know your thoughts.
Bob,
I sat in an ASTRA session a few years ago and wondered what the Internet would look like when 500 indie stores all opened online sites as this guy was suggesting. Here in Jackson I compete against a handful of big box stores and I have the upper hand in products and services to do it better than the competition. But online I’ll compete against hundreds of sites with all the same products and services, and I won’t have the resources to do it as well as the big boys.
Plus, what no one is talking about is that although online sales are growing, in 2008 they only accounted for 3.3% of all retail sales. That just isn’t a big enough pie to try to get a bite out of right now.
Hey Phil thanks for following up – exactly. Online you can indeed look as big as the big boys but you can only compete if you play the game like the big boys and commoditize the offerings to get to the lowest price. The figures for 2009 were about 9% of sales – even though the media loves to tout they’ve grown by 50% but it’s still 1 out of 10 shoppers in a very crowded field. The way to be profitable as you are at Toy House in MI is to go above and beyond to not look like the big boys – through your people.
Again to readers, I’m not saying to not have a great website. You must. What I’m talking about here is a product page with shopping carts, etc.
Bob,
if a retailer is too little and cannot manage lots of complex informations in order to segment clients as bigger retailers do, the solution could be letting the market supply, i.e. auctioning items, so the shoppers decide the prices, instead of waisting resources trying to understand what the shoppers are willing to pay.
Thanks for stopping by! It could be but ebay can take a lot of time with pictures, uploading and descriptions too. Is this something you do?
A retailer could auction on its own site, uploading automatically pictures and descriptions:-)
The wrong way for a small retailer is stick on ecommerce the same conception of brick and mortar. Auction is a different way to compet.
[...] wrote a whole blog on why you shouldn’t do it: http://www.retaildoc.com/blog/online-shopping/abandononlineretailstore Basically, if you can’t be as good as Amazon, don’t try. The margins aren’t [...]
I read your article with interest. I’ve been selling automotive tools online since 1995. We do between 25 and 30% of our overall sales online and we have done well enough to continue because we sell a highly specialized item worldwide.
You are correct in your assertion that people are shopping online for price and that the big websites are tracking and targeting customers.
I just thought I would bring up one other thought on this topic. I believe the reason certain retailers are rot gut cheap in their online pricing is not because they are taking a loss to build a database of customer, but because these “retailers” are really the “manufacturers.” I think genuine retailers are having to compete with their own suppliers now. The supplers, not wanting to lose the retailers at this point, have set up dummy websites from which they are wholesaling to the public.
I have come to this conclusion because I’ve been in the tool business since 1989, our brick and mortar store has been pricing and buying from suppliers and directly from manufacturers for over 20 years, and I can read the pricing structure. For example, a wrench that would cost us $8.31 to purchase from the manufacturer is being sold online for $8.11. To the retail shopper, the $8.11 price tag is a steal, but to the retailer, we know that when the item is sold for $8.11, the only way the seller can make money is if they are producing the item.
In my industry it comes down to this: does the manufacturer have the resources to run their own website and sell their own goods? If so, don’t bother trying to compete on that line of items. If not, put that line of products in to your online inventory and see what you can do, because you won’t have to be competing with that supplier or manufacturer online.
In conclusion, I think we are looking at the technological revolution in this country. The entire supply chain is being upended for retailers nationwide. Why should the manufacturers and suppliers, with plenty of resources, waste time on their retailers, when they can make more money going directly to the consumer? They are simply cutting the middle man out of the equation.
Great point Sherry and truly could be a game changer. While online is touted as the be-all and end-all, it still only represents 9% of retail sales. I think there will still be a need for bricks and mortar at least during my lifetime. But manufacturers competing against the customers who made them cannot be good for anyone but the end user customer.