Strategies For Launching An Online Retailer
Today Amazon is the biggest Internet-based retailer. The company was born in the first wave of the Internet and managed to survive the bursting of the tech bubble. Its stock price has gradually climbed since that time. If you invested in Amazon back in 2001, when few still believed in the Internet, it may have been the best investment of your life. The stock has since climbed to over $390 per share up from a price of below $10. The company famously started out as a book retailer and has gradually expanded its business to sell almost anything, even computing resources and its own hardware.
The retail industry poses unique challenges for upstarts because there are so many advantages to having economies of scale. Amazon has the negotiating power to push their suppliers to offer competitive pricing. They are able to sell a seemingly endless supply of products, which makes them a very convenient destination for shoppers. Usually, we like to buy everything at the same place, and Amazon has the selection to make that possible. Amazon is also such a large business that it is easier for them to cover their fixed costs and to invest in infrastructure. If Amazon wants to hire the best marketing strategist in the world, it’s easy for them to do that since the cost can be split up over their business. They can also choose to invest in warehouse facilities all over the world, and even come up with initiatives like their drone delivery program.
Perhaps even more importantly, Amazon has proven themselves to be willing to earn a minuscule margin, explained Brad Stone and Jim Aley in a piece for Business Week. “Bezos is more concerned with driving cash flow than making money because he believes the opportunity offered by the Internet, and by e-commerce, is massive and still largely untapped. To him, it’s still a land grab. So he’s prepared to cut prices to the bone and add all those freebies to cultivate customer loyalty and drive sales growth. Then he reinvests it all in more low prices and further expansion, driving additional customer loyalty.”
Any new retailer has to be aware of this mentality that pervades Amazon, or else they are likely to pursue a dangerously short-term strategy. If you decide to sell TVs, for example, you must be prepared to accept razor-thin margins and to accept that Amazon has entrenched advantages that will make it difficult to build meaningful market share. You may even find yourself competing in a category where Amazon and other retailers are prepared to lose money in order to attract customers to their sites.
For those reasons, you should look for areas where you see opportunities to gain competitive advantages. One way you could do this would be by selling your own products. You can control where the goods can be bought and naturally consumers would buy from you directly. You could choose an area like fashion or furniture, start by selling a narrow subset of products and then expand out from there. You will need to build out manufacturing capabilities, which could be challenging, and – whatever approach you take – dependable package shipping services will be required.
If you want to sell other people’s products, it might be best to find an underserved market and use that as a way of building out your business. You could possibly find distinctive products that are sold by few retailers and become a place where people come to find great products that you just don’t find anywhere else. In the stationery business, for example, many of the best products come from individual designers who often don’t have developed relationships with big retailers. This could present an opportunity for you to be first.
There are also many brands that are unhappy with being pushed to lower their prices. This could be another area where disruption could occur. You could become known as the place to buy quality products and build relationships with brands that have fallen out with Amazon and other big retailers. As your audience grows, you could maybe get some brands to develop products exclusively for your store. You might also find that – because you are prepared to sell expensive products – the big brands actually drive their customers toward your website. This could be an interesting starting point for a retailer with even bigger ambitions. Start from the top and build a core business with high margins. Then start building out your business and acquire customers in other segments of the market.
This is a guest post for TheEmployable