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EcommerceBytes-NewsFlash, Number 2713 - January 09, 2012 - ISSN 1539-5065    0 of 3

Online Selling Trends Part 1 - Challenges Facing Online Sellers

By Ina Steiner
January 09, 2012

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Online shopping gained traction in the mid-1990s and ultimately revolutionized the retail industry, and now ecommerce is facing its own disruptions with the rise of mobile shopping and new technologies. EcommerceBytes asked a panel of experts a series of questions about the challenges and opportunities facing online sellers in the year ahead.

EcommerceBytes selected participants not for the size of their companies, but for being on the front lines and working closely with retailers, particularly small online sellers. Their companies provide services in a wide range of areas, including advertising, marketing, product sourcing, payment services and bookkeeping. We also invited participants from online marketplaces and a retail consultant.

It's interesting to observe that their areas of expertise color their responses, precisely the reason for selecting a wide range of vendors.

adMarketplace CEO Jamie Hill (Pay-per-click ad platform)
Bonanza founder Bill Harding (Online marketplace)
Dwolla founder Ben Milne (Online payment service)
FitForCommerce Vice President Danielle Savin (Retail consultant)
Liquidation.com Vice President of Marketing Rob Caskey (Online marketplace)
MyStoreCredit founder Brian J. Lawe (Marketing service)
Outright CEO Steven Aldrich (Bookkeeping service for online sellers and entrepreneurs)
PageMage founder Chris Taylor (eBay marketing service)
Ruby Lane Director of Communications and New Business Development Palmer J. Pekarek (Online marketplace specializing in antiques and collectibles)

In part one of this series, we look at the challenges facing online sellers in 2012 and whether ecommerce is more difficult for small sellers now compared to 5 years ago.

What are the biggest challenges you see online sellers facing in 2012?

adMarketplace CEO Jamie Hill: Attracting new customers cost-effectively. With the economy picking up, existing customers should increase their spend. The challenge now is getting the new customers who are entering the market away from the competition and in front of your offering.

Bonanza founder Bill Harding: I think that the set of challenges depends largely on the marketplace the seller is using.

For those on eBay, being able to make decent margins in spite of FVFs around 10% will remain a challenge in 2012. Google's hit-and-miss inclusion of eBay items into Google Product Search will be a point of concern for regular sellers, as well as eBay's momentum toward working with larger brands & stores (and thus, away from the smaller auction sellers that were once their bread and butter).

For Amazon sellers, there is the 15% FVFs, as well as the challenge of establishing their identiy. Amazon has built an experience that basically renders the seller transparent to the buyer - buyers typically just think they're "buying something from Amazon," rather than from the specific merchant. This makes building repeat customers tricky.

For the smaller marketplaces and for sellers that strike out on their own website, getting exposure will be challenging. A lot of marketplaces, particularly those that have launched in the last year, expect sellers to drum up buyers from their social network connections. But really, the whole point of selling on a marketplace should be that the seller has to do as little legwork as possible to make as many sales as possible. You probably don't want to spam 500 of your friends every time you post an item.

Dwolla founder Ben Milne: Disclosure - I'm not a seller, at least I'm not anymore. I've been out of that world for a while now. What I am is a guy obsessed with creating a new payment option that helps sellers save money, get funds faster and avoid the liabilities involved with taking credit cards. Please take these seller-oriented predictions with a grain of salt.

That said,...To me, sticking out among what will continue to be a growing list of sellers fighting over people's dollars will be interesting. Over the last year the market has seen many models, like flash deals and hyper product specialization (e.g. http://www.bellybling.net/), really go mainstream. Price and instant-gratification became the new consumer expectation, and I think that hurt a lot of retailers that couldn't afford to scale or offer the technology to accommodate Joe Bluejeans' request for paying half price on the $150 pair of Levis. How merchants react to this new model will be interesting to see.

FitForCommerce Vice President Danielle Savin: Retailers are already behind if they do not have a Mobile ready site. This is a huge issue. The amount of consumers shopping from smart phones and iPads is significant. Approximately 15% of all online traffic came from mobile devices this holiday, more than double the previous year. Mobile commerce made a further shift in 2011 with more sales and marketing campaigns aimed specifically at tablet users.

Consequently, an exclusive experience is needed for tablet-specific advertising. Google has recognized this change in consumer behavior and recently rolled out a means for its advertisers to develop tablet-specific marketing.

Retailers providing a cohesive shopping experience and brand experience through ecommerce, brick & mortar, catalog, social and mobile. Privacy is a big concern for all retailers not just Facebook. The hacking of credit card numbers has risen. Email and SMS scams are on the rise.

Liquidation.com Vice President of Marketing Rob Caskey: Depending upon their industry, one of the bigger remaining challenges for sellers is getting access to a continuous flow of quality goods. Online sellers who can't consistently source product damage their businesses by failing to meet customer demand. Liquidation.com solves this problem for online merchants by working directly with some of the world's largest retailers and making their surplus and customer returned product (including HDTVs, iPads, iPods, Acer computers, apparel and more) available at auction on the site consistently. As a result, online sellers can rely on being able to get product as they need it from Liquidation.com.

MyStoreCredit founder Brian J. Lawe: More and more competition in every product category means more and more dependency on product search engines. To use Occupy Wall Street's vernacular - it is the 99.99% of sellers versus the 0.01% of search engines. Price, reputation, structure and fresh content being the most critical factors.

Outright CEO Steven Aldrich: There are three new challenges facing online sellers in 2012 - (1) including information from 1099K forms in 2011 taxes; (2) dealing with potential changes in sales tax compliance; and (3) finding a balance between work and the rest of life as consumer demands increase - in addition to the usual difficulty of creating a successful business.

Hundreds of thousands of ecommerce businesses will receive 1099K forms detailing their 2011 gross online sales. Many will be confused as to how to include that information on their taxes and concerned since the IRS gets a copy, too. 2011 taxes, which are filed in 2012, are the first where revenues generated in places like eBay, Etsy and Amazon are required to be reported to the federal government. The IRS requires that payments made with a credit card or payment card be reported to merchants who processed more than $20,000 and 200 transactions by January 31 and to the IRS by February 28.

Small businesses receiving these forms will wonder how to reconcile the gross sales amounts shown they receive. We've been working on a solution at Outright to reconcile these amounts and help the merchant be confident they are reporting the right net sales data for their taxes.

This may be the year when sales tax rules get simplified for online sellers - or this could be the year it gets more complicated. The Marketplace Fairness Act is being debated on Capitol Hill with eBay and Amazon on opposite sides of the debate. The best case scenario would be a simplification of cross-state sales tax rates and a minimum revenue threshold of $500,000 for applying the new sales tax rates so that the smallest of businesses are exempt. If that does not happen, small business will need to handle another regulatory burden.

Consumers are increasing their expectations of online sellers, increasing the burden on the owners. Traditional retail storefronts have published hours of operation, setting a schedule where the business owner is working with customers and selling. In contrast, consumers expect ecommerce stores to be "open" 24x7, 365 days a year, and they expect the same level of service from a small merchant as from a large one. Online sellers need to be careful to find a schedule that works, so they have time to support customers, but also manage the business and save some time for friends, family and enjoyment.

PageMage founder Chris Taylor: I can think of several key areas.

Business - Managing expenses such as fees, shipping costs, inventory costs and other selling expenses to maximize profitability. Including understanding new tax laws! Know your profit and loss statement to have a more successful business. Also manage the selling side, conversion rate, average selling price, sales velocity and more. Know these numbers to best manage your business.

Marketing - Certainly awareness driven through search, SEO, general marketing, social media and other ways to get in front of your target audience. This includes understanding your competition so you have the right products at the right prices. But also branding as the big brands increase and broaden their visibility online. Sellers of all sizes must be in the right place but also convey a brand that connects with their target audience and helps drive the sale.

Knowledge - The online world is changing every single day. There are more and more choices for everything. Understand what's happening, determine what changes you need to be aware of and address and focus on just those.

Planning - We've actually written a guide called "Grow your eBay Business with SWOT - Strengths, Weaknesses, Opportunities and Threats". It's a process to help sellers look at their business and determine what they can do to grow.

Ruby Lane Director of Communications and New Business Development Palmer J. Pekarek: 1) Reaching new markets (i.e. European, South America), etc. 2) Reaching a younger market for vintage and collectibles. 3) The learning curve for online sellers with new technology.

Do you think ecommerce is more difficult for small sellers now compared to 5 years ago?

adMarketplace CEO Jamie Hill: Not for the sellers that offer a valuable and differentiated product. Yes for sellers who are following a copy and paste business model - those are always short term.

Bonanza founder Bill Harding: I think that there are far more viable ways to sell online than there were 5 years ago. Whether sellers see this increase in choice as making life "more difficult" or "more exciting" depends on their mindset, I suppose. I would imagine that most are happy to have good alternatives, including marketplaces like Bonanza that make a point of being "seller-friendly."

The ubiquity of Google Product Search (GPS) has been a boon for all online sellers, since it allows them to get page views and sales even when they don't want to sell on the largest (and most expensive) marketplaces. Five years ago, if you weren't on eBay or Amazon, you probably weren't making sales. In that sense, GPS has given "power to the people."

Dwolla founder Ben Milne: Again, I've been out of the industry for a while, but I have to assume, "no." Yes, new models, like Gilt, Fab and Living Social, may make it more crowded, but there are a lot of great options out there that are helping people get into the game and that's half the battle, right? Resources like Goodsie, Shopify, and Stripe are making existing online easy. The costs are becoming more affordable too.

FitForCommerce Vice President Danielle Savin: I think it is both an opportunity and a challenge. The challenge continues to be the Super Sites like Amazon, Zappos, Walmart where the consumer can do one stop shopping and the retailer has the money to invest in technology and not only keep up with the consumers expectations but set those expectations too.

But I do believe that many smaller pure play retailers have been creating a unique voice for themselves through social and content. Many of our clients have been updating their sites to mix, social as well as expert content within their ecommerce site to solidly set them apart from the largest of big box retailers.

Liquidation.com Vice President of Marketing Rob Caskey: In many ways, ecommerce is easier for small sellers now vs. five years ago, as there are multiple tools available now to simply traffic driving, channel allocation and shopping cart processing. At the same time, these tools have lowered the barriers to entry for new sellers, which creates more competition. Additionally, you're starting to see manufacturers and retailers using eBay and other venues to sell their product directly to consumers, which raises the bar for everyone in terms of customer expectations.

MyStoreCredit founder Brian J. Lawe: Large or small, ecommerce is more sophisticated and experience counts. The days of taking a few photos, popping a listing on eBay and getting a notice that the item sold within seven days for a decent price are long gone.

Today, the core strength for a seller is buying items as inexpensively as possible, selling them on multiple venues as cheaply as possible and having the back-end shipping and management practices down so efficiently that the product gets shipped and delivered to the buyer in two to three days. The learning curve to accomplish all that is steep. If you try to learn it by trial-and-error, your reputation as a seller will be destroyed before you reach 100 sales. New sellers coming online are getting skewered.

An area where established sellers should focus is on international sales. That remains a strong opportunity for any seller's items.

Outright CEO Steven Aldrich: No, on the contrary, it is a lot easier! Online marketplaces are increasingly allowing third party sellers to compete and customers are getting more comfortable with purchasing from third parties. For example, Amazon just announced a 44% increase in revenues for third-party sellers year-over-year for the holiday season. Technology and related services are also allowing for small sellers to get much more efficient. The Fulfillment by Amazon service allows small sellers to have the fulfillment of orders done for them. Outright makes it extremely easy for small sellers to track and manage their business, including providing tax totals for them.

PageMage founder Chris Taylor: Yes. There is more, more, more. More competition, more tools, more marketplaces than before. Understanding what's right for your business, focusing on the right things to succeed, staying focused and executing them.

Ruby Lane Director of Communications and New Business Development Palmer J. Pekarek: I think it is easier. There are so many great venues to sell through and from, and creating your own site is very simple. In general, I think that sellers are more comfortable about online commerce, safety and navigating sites.

What Do You Think?
Part two of this series on online selling trends for 2012 will tackle the opportunities ahead for online sellers (available now on this page). Part three is now available on this page, and Part four is available on this page.

If you'd like to comment on these experts' answers or if you have your own thoughts about the challenges you face this year, let us know by participating in this discussion thread on EcommerceBytes forums.

Comment on the EcommerceBytes Blog

About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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