Online operators….all that is glitter is not gold…

Anybody who thinks that putting their unwanted Christmas pressies online and making a fortune , need think again. Well not quite true ‘cos if they cost you nothing , you will make something. That’s if you sell them. You, then, have to think if you don’t want them, why would anyone else? Ten years ago it may have been different . You still wouldn’t have made a fortune, but you would have probably made something.

The pattern is similar for online retailers. Five years ago they would have made good, relatively, easy money. It is a very different story today. There are few bricks and mortar retailers, in any market that would not say when asked ….I am being affected by online traders…In the U.K. online accounts for nearly 19% of all retail expenditure (world’s highest percentage). This means that for every £100 that used to be spent in shops ,£20 is now spent online. What is more , now £11 out every £100 is spent via a mobile device.

Retail life is very different. Online retail is even more different. There are a number of major issues, now facing online operators, that have arisen within the last five ‘plus’ years.

Stand alone web sites that were successful in the early days are now struggling against much bigger competitors who have much deeper pockets. A reality that is little different for any retailer.

The costs to market have dramatically increased. To keep yourself in front of your consumer has become a very expensive exercise. Furthermore, it is constant. The investment for back office structures and technology is high and constant as the technology changes , virtually daily, and becomes increasingly costly.

The costs of service have risen dramatically as have the consumer expectation. Today, the consumer expects next day delivery, 24 hour customer service and more often than not free or very low delivery charges.

The World Wide Web is exactly that. Your online competitors maybe based in Bristol or Beijing.

And of course, the elephant in the room , Amazon (and to a lesser extent eBay ). Let’s not forget that the elephant has been an extraordinary enabler for many successful online businesses. Starting over twenty one years ago, growing exponentially year by year, but in reality not really coming onto the radar in a more general sense until ten to twelve years ago, Amazon has become a retailing ‘behemoth’. Through the next six/seven years they developed their market place putting the consumer, very much at the forefront of their focus. Amazon suddenly became a huge cash generating machine and big players ignored them at their peril. Now few can afford to ignore the beast. Quite literally, there are few parts of our everyday life that their tentacles do not reach.

Being a huge cash generator does not necessarily equate to profit. Far from it. As a legitimate operator it is extremely difficult to create a working margin, especially with low priced items. As many will tell you, if your product costs you ‘zilch’ you would be hard pressed to earn any money on any item retailing for £2-2.50 . After commission, VAT, postage and operating costs there is nothing left . Yet items still appear for less, which is why I used the word ‘legitimate’ traders.

Therein, lies a further obstacle..non legitimate traders. I would rather not use the term illegitimate, as many are on the ‘edges’. Much of what they do may not be strictly illegal but is highly questionable. Because of the ‘world widelyness ‘ of the web it makes it very easy for these traders to dip in and out of whatever market they like, virtually with impunity, with little chance of any authority having the resources or inclination to investigate.

Amazon, itself, whilst panned for paying minuscule amounts of tax, for many years made no profit at all, it was all ploughed back into the business. Closer to home, Ocado, the UK’s leading online grocery site, established over seventeen years, took over ten years before making an operating profit.

What to do? There is no doubt that online will continue to harvest an increasing share of the retail market. But what is also true is that within the next two-three years that market place will be very different to that of January 2018. The technology will continue to develop, logistical challenges will increase , the consumer perception and expectation will change, costs are likely to increase and margins will be squeezed further. The latter is quite simply the continuing cycle of any retail development.

I am not expecting bricks and mortar retailers to shed any tears. However, there are many who think that all online operators are ‘thieving gits!’ or as one customer very recently said in a rather more restrained manner ‘the authorities should stop Amazon and anyone who sells on them…as they are ruining everyone’s business ….’

I have no doubt that within ten years ‘traditional online retailers’ will be bemoaning the fact that their business is being desecrated by ‘dronetailers’ who are sending ordered product down to a device around your wrist(no it won’t be a watch because that will be imbedded into your other wrist) which will 3D print your order within ten minutes….and then replace it every 12 months with an updated version…or, maybe someone will get a building, fill it full of stuff and get people to come along and buy the stuff….don’t bet against, Amazon aren’t.

The problem with glitter is that most of it gets blown away or hoovered up….

2 thoughts on “Online operators….all that is glitter is not gold…

  1. Thanks for another great blog, always an interesting read Mark, Thank-you. I would however state you can trade legitimately on items under the price point you state, especially since price structures changed on the Marketplace. However, the number of legitimate traders is questionable, with full knowledge of the costs and margins, it is impossible to sell legitimate products and using legitimate practices at some of the price points we see on a daily basis.

    Liked by 1 person

    1. Hi Andrew,
      thanks for this. yes I am aware that the price structures have changed , but the point I was trying to make for any bricks and mortars that the margins are tiny and it at that price point business it not that simple.
      appreciate all comments ! hope to see you at the NEC
      mark

      Like

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