Online Retail May Be Big Business but Small Business Can Compete

Posted on May 06, 2019 at 16:32 PM

eCommerce Growth

ECommerce is largely a game of the big players, and the big players are not all in the United States. In fact, of the top five online marketplaces, only two, Amazon and Ebay, are in the US. The other three are in China, where enormous population will always give an edge, and where one man, Alibaba’s founder Jack Ma, caused an entire country to shift from mom-and-pop street food to next day delivery in a shockingly short number of years.

Increasingly big Chinese players like Alibaba, which owns the world’s largest marketplace, TaoBao, are trying to move into global markets. While the English versions of Chinese sites are not known forclassy design, if you want to buy from TaoBao using an English speaking site, you can.

While TaoBao is mostly business to business, it recently spun off TMall, a B2C site for brands that don’t have a presence in China but wish to sell there.

Tmall International, a B2C platform part of Alibaba Group, is a popular online marketplace in China where many international brands are selling their products. Nowadays, Tmall has over a 50% market share of the B2C business in China and soon will become the largest e-commerce platform. Tmall International currently hosts more than 400 foreign brands coming from 25 countries and regions. It has become the easiest way to penetrate into the Chinese market because Tmall International provides a cross border business model for many foreign brands and retailers to expand their business into China.”

Between TaoBao and Tmall, both part of AliBaba group, Chinese online commerce is almost totally controlled by giants. The third company, JD.com, is an online retailer that provides same day and next day delivery, something Amazon is only beginning to roll out in the US.

Research available from Internet Retailer for last year’s sales tells the story. Last year, consumers spent $186 trillion globally on the top 100 online marketplaces. The 59 large marketplaces based in the United States grew sales 16% in 2017. Growth in 2018 was 23%.

Of the top 100 marketplaces, 39 were launched between 2010 and 2015, which gives an idea of the accelerating global eCommerce growth. Ex: Houzz, a home design marketplace is now the fifth largest marketplace in the US. Houzz released its first app in 2010, the same year Wish launched its extreme bargain shopping website founded by two programmers from Google and Yahoo.

To sell goods on these platforms merchants pay a median commission rate of 11%. For most retailers, selling on a platform like Amazon takes much of the profit out of the business and is rarely profitable for smaller companies. And yet $525 billion worth of goods were sold on the big marketplaces last year.

How are Small Retailers Supposed to Compete?

 

Occupy a Small Niche

One way is to occupy a small niche. Rothy’s, a direct-to-consumer brand that advertises heavily on social media sites, fashions its shoes out of recycled plastic water bottles (don’t ask us how). They can cite chapter and verse about how much plastic they have rescued from the Pacific Ocean, and how comfortable it is to make shoes woven out of plastic. Their tag line: “Style Meets Sustainability.” and all they sell is shoes. Flat-heeled shoes at that.

And then there’s Bombas, which made its name selling only socks and donating a pair to charity for every pair it sells. Bombas has sold over 15,000,000 pairs of socks, and has been instrumental in making socks—once an overlooked accessory item—a “thing.”

Tell a Great Story

All the new successful brands have a great story. Good brand stories might start out by telling about the company’s grassroots, founding of the brand, or of some social purpose, and may evolve into something so grand as ‘changing the world’.

Rothy’s brand story says, “it began as an idea to turn recycled single-use plastics into something both beautiful and useful”. After three years, Rothy’s claims to have taken 20 million plastic bottles destined for landfills and repurposed them into “timeless, durable flats.”

Give Great Customer Service

The customer is the king, long live the King It’s never a mistake to give great customer service than the big guys, although we will admit that Amazon is hard to beat. But when Zappo’s first launched, its founder, Tony Hsieh, took for himself the title of “Chief Happiness Officer,” and explained to his employees that they weren’t really delivering shoes, they were delivering happiness. On occasion, Hsieh instructed his team to choose several customers who would receive free overnight shipping, surprising and delighting them with customer service that was more than they expected.

Hsieh created a culture that has profoundly influenced not only eCommerce but companies worldwide, in a cultural sense and when it comes to customer service. Free returns and free two-day shipping became the norm.

In 2009, Amazon acquired Zappo’s for somewhere around the mark of $928 million.

Social Media Marketing

Almost no product based B2C business can succeed without utilizing social media for marketing and online promotions.

The socialization of online shopping probably started with the legendary site Woot, which began by featuring a product that was offered at incredibly low prices until it was sold out.

When it was gone, it was gone.

Announcing these flash sales on social media created rabid online fans who began watching the site on a daily basis, waiting for a product they liked, and then gleefully snagging it at a bargain price.

The huge online platform Wish, which is exclusively discounted and closeout items from all over the world is the logical consequence of Woot.

Surcharge to Recover Credit Card Processing Fees

And last, but by no means least, Take advantage of surcharging. Surcharging is the practice of recovering credit card processing fees by passing them onto the customer. Businesses are taking advantage of SurchX’s free surcharging solution and adding up to 30% to their net margins. This is huge for companies who are margin sensitive such as high-risk merchants.

Conclusion

If you follow these five rules you should be agile enough to compete with the big boys:

  1. Create a niche,
  2. Tell a great story,
  3. Give great customer service,
  4. Use social media marketing,
  5. and Increase your margin through surcharging,

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