Who would start a retail business these days?
Running a physical retail business has become very challenging these days. Even the big supermarkets are finding it difficult but the ones feeling the most pain are the small retail businesses. Rising costs such as rent, rates, utility bills, staffing etc. contrast with falling sales revenue and tighter profit margins as the general economic belt tightening affects consumer demand.
One of the biggest reasons for the downturn in trade on the high street though is the growth of on-line retailing. The big advantage on-line retailers have is the absence of many of the fixed costs of physical premises, the very costs that hit hardest when times get tough. So you can see the attraction of running an on-line retail business. But it’s not all rosy in the on-line garden!
The big advantage of the high street retailer is their visibility and the passing foot traffic of potential customers. On-line traders don’t have this advantage. Websites are hard to find, just take a look at Google, Bing or Yahoo, thousands of results for a simple search when a customer is looking for something and very little chance of an impulse buy when they aren’t. So is on-line really the answer? Probably not, at least not if you go it alone. The costs of capturing enough visitors to make it worthwhile can be prohibitive.
So is any retail business viable right now?
Well the answer, surprisingly is Yes! If you go about it the right way.
Physical retail businesses have increasingly gathered together first there was the village or town market. This developed into what we now refer to as the High Street or Town Centre. More recently we’ve seen the growth of retail parks and giant shopping centres. The more businesses cluster together the more customers they collectively attract. So it is on-line. In the early days of the web we had eBay and Yahoo shops, the modern equivalent of an on-line retail park. Many successful small businesses got their start in one of these and some went on to become large enough to stand alone with an e-commerce website of their own.
Competitor or Protector?
There is one massive on-line retailer that many businesses, large and small, consider to be their main competitor – the retailer who’s rapid growth has eclipsed any other. That retailer is, of course, Amazon with a massive online presence and world-wide coverage. This behemoth is credited with (or accused of) changing the face of retailing forever and killing off many small retailers and even severely hurting even the large supermarkets. But there is a little known statistic that I recently came across that suggests that around 40% of Amazon’s sales turnover is not their own stuff! This huge chunk of what appears to be Amazon’s sales actually comes from an army of smaller retailers who operate in the Amazon market place. Amazon is not so much an on-line superstore but more of an on-line retail park or shopping centre. Amazon has created this huge shopping presence on-line and then shared it with other businesses thus giving them a ‘leg-up’ into a place they would struggle to be on their own. They all benefit from this amazing Amazon selling machine.
The Amazing Selling Machine
By setting up shop in the Amazon Market Place you avoid the costs of retail premises, the cost of setting up an e-commerce store or marketing costs and avoid the time it takes to get a retail business up and running. If you use their fulfillment service you save on storage costs as well as packaging and delivery costs. You can also save on credit card payment services (including the hassle of getting approved) and a variety of other standard retail costs. Of course Amazon don’t do all of this for nothing but their fees benefit from being totally sales related whereas most retail costs are fixed regardless of sales levels. This almost guarantees a profitable business. What’s more you have an instant global market presence if you want to scale up the business.
I could probably write a book on the subject but for now get more details on Amazon’s services to retailers right here: