Thursday, January 21st, 2010...9:29 am
Why You Should Abandon Having An Online Retail Store
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 last week, 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 today’s price for Sarah Palin’s Going Rogue. List price is $28, Amazon has 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 coming out in April.
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?
10 Comments
January 21st, 2010 at 10:08 am
[...] 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!] [...]
January 22nd, 2010 at 12:59 pm
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
January 22nd, 2010 at 3:55 pm
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!
January 22nd, 2010 at 4:26 pm
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
January 22nd, 2010 at 4:29 pm
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.
January 23rd, 2010 at 7:34 am
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.
January 23rd, 2010 at 7:38 am
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.
February 2nd, 2010 at 12:24 pm
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.
February 2nd, 2010 at 12:38 pm
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?
February 2nd, 2010 at 6:45 pm
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.
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