I consider myself a very active online shopper. A decade ago I may have purchased 5% of my commodity items online, today, that number has increased to about 90%. I rarely step out of the house to buy non-perishable goods without first checking prices online. If the price and shipping time are acceptable to me, and if I feel comfortable purchasing from the retailer, I hit the "buy" button and leave the car keys hanging on the hook.
I shop a wide range of online sites - eBay, Wal*Mart, Target, Barnes & Noble for many mainstream items, small independent retail sites and smaller marketplaces for buying unique and hard-to-find goods. And of course, I shop on the granddaddy of them all, Amazon. I couldn't begin to tally how much I've spent with Amazon over the years, and I've not once had an experience that made me question whether I would purchase from them again.
To be sure, there have been mistakes - wrong orders, merchandise that has not arrived on time, products that I've received broken, duplicates - but those instances have been very few and far between, and the important part is that Amazon knows how to make it right. Actually, the reason that I enjoy shopping on Amazon is based on the rare occasion when a transaction has been less than perfect. The successful, uneventful purchases all blend together. But whenever there has been a problem, the way Amazon has handled them stands out, and as a consumer, has made me an unabashed fan and gives me the confidence to return as a customer.
But it also got me thinking about why Amazon can afford to make the customer whole when a transaction has gone bad. How can a retailer afford to eat return shipping costs, or allow me to keep a duplicate item if they err? Granted, it doesn't happen often, but multiply my experiences with the millions of people that shop on Amazon and the cost of a screw up can add up quickly. To me, it all points back to one thing: Buying Power.
Amazon, Wal*Mart, Target buy merchandise in such prodigious quantity, that they can build the cost of returns and breakage into their prices, undercut competition, and still maintain margins that allow them to operate profitably. Mega-retailers make most of their profit on the buy side. Continuing along that line, I began thinking about our audience - small and medium online sellers. How can those merchants possibly compete with retailing giants that will always be able to undercut their prices?
They probably can't. So does this mean that as the Internet matures, it will no longer accommodate the smaller merchant? No. Does this mean that a fairly large percentage of small online retailers will no longer be with us in five years? Yes, I think it does.
Again, as a consumer, I love the way Amazon does business. That's because when I'm shopping for commodity items, I have just a few, very basic requirements of a retailer - price, convenience and assurance that my product will arrive in a safe and timely manner, and if it doesn't, that I will be "made whole." Simple. Sure, there are exceptions - customers who will only buy American, purchase green products, but I would argue that the average consumer has a similar mindset as mine when they're shopping online. Combine that narrow-vision consumerism with the ability of a large retailer to accommodate those needs and it spells trouble for mom and pops.
So which small merchants will be still selling online in five years? I believe antiques and collectibles dealers will be fine. Merchants who craft or produce their own product will thrive. Merchants who have a secure pipeline of inventory should be ok - unless their source of inventory is not as secure as they thought. I'll get back to that in a minute. Why do I feel that these types of sellers are more suited to be able to handle the changes coming to ecommerce over the long haul?
- Antiques and Collectibles dealers generally have a deep base of knowledge about the merchandise they sell. Like large retailers, they also make their money on the "buy side" by knowing which pieces are likely to bring the best return, and which pieces to avoid or sell off-line. Selling this type of inventory takes a lot of leg work, but the smart A & C sellers still know where to find inventory, and how to extract profit.
- Crafts sellers, artists, artisans and merchants who create their own product (whether "practical" items or arts & crafts) are in a great position to succeed. Typically, the expense is not in the materials, but in the hours of labor that it takes to create product. It's fairly obvious, but the more control you have over the product you sell - including your skills and talent, the better position you are in to succeed.
Which sellers are most at risk? Obviously, if Amazon cannot be undercut on price, any merchant selling new merchandise is treading very thin ice. Heck, if I'm selling shoes, clothing, jewelry, pet supplies or electronics, I'd probably want to be selling on Amazon, because of the immense number of eyeballs that will be sent my way. I might even join Fulfillment By Amazon (FBA), send them inventory and let them fulfill it for me. But this is where it gets tricky because Amazon has all the data on how quickly merchandise on their site moves, and what is trending up and down. If you have an item that is a hot seller, you may suddenly find that Amazon is offering the same product as you, at a reduced price and free shipping. Good luck competing with that!
- My optimism toward merchants who have solid sources of inventory - whether they be liquidation items, CDs or DVDs that are not mainstream, one-off clothing lines, jewelry, refurbs - is a bit more tempered. The secondary market is hot, and eBay has also expressed interest in focusing on this area. If a merchant is confident that their inventory stream is not in danger of being poached by a competitor, they should be fine. But expect your sources of supply to have other suitors if their product is in high demand.
Even if you're a commodity retailer not selling on Amazon, and have multiple sales channels, including your own, you may find it tough sledding. Not only might you find Amazon carrying the same line of product that you offer, but some online merchants have accused Amazon of "unleveling the playing field" by not complying with manufacturers' Minimum Advertised Price (MAP) policies. If you want to learn more about MAP, there's a good article here.
Suffice it to say that I may love Amazon as a shopper because they treat me so well, but sellers may not find them nearly as benevolent. Nothing in this industry (or the world, for that matter) happens in a vacuum or goes unnoticed. As an online merchant, it's virtually impossible to run a business "under the radar" without having a competitor or two pop up along the way - and the now competition will be larger and coming from the marketplaces themselves.
I realize that when I shop online, my decisions positively affect some retailers and adversely affect others. But to entice me to hit the "Buy" button, it still comes down to price, timeliness and comfort factor. So have I overlooked something? How will smaller commodity retailers, and those that deal in practical goods compete? I'm not sure they can. One last thing - the irony is not lost on me that the sellers that seem to be best positioned to succeed long-term, are the ones that feel the most disenfranchised by eBay.
I'm open to being convinced that I'm wrong - tell me, where do you see your online business in five years? What do you sell, and how optimistic are you that you'll still be selling online in 2015?
David Steiner is President of AuctionBytes.com.