Practical Ecommerce

What’s the future for smaller ecommerce retailers?

With the growing dominance of Amazon and Ebay for everyday consumer items, what future is there for the smaller ecommerce business?

Amazon and Ebay both emphasize price. Many shoppers on those sites do not care who the actual supplier is, as they rely on the platforms to ensure that the supplier is reputable. This is especially true of Amazon. Indeed many Amazon shoppers do not even realize that they are buying from a third party.

Moreover, there is the growing trend for both manufacturers and authorized distributors to sell directly on Amazon and avoid the retailer completely. Few retailers can compete on price alone against the manufacturer. Indeed, with such large platforms, why should the manufacturers care about retailers? They can presumably make better margins by selling direct.

If competing retailers stop selling, manufacturers can presumably stop competing on price and improve margins even further.

Manufacturers: wholesale or direct?

In recent months, manufacturers and distributors have started moving into two distinct camps. Some want to continue selling through brick-and-mortar stores, and thus keep prices at a certain level. Others seek more profit by selling directly on Amazon.

In the E.U., manufacturers that seek sensible prices are not helped by legislation that strictly prohibits price fixing and minimum pricing. So they tend to ask that their merchandise not sell on Amazon or Ebay.

Smaller retailers can compete on intangibles, like customer service, packing, and delivery. They can offer a more personal service. The problem is that most Amazon and Ebay shoppers do not choose suppliers on these factors.

So what can be done?

Avoiding lower-value goods

The first thing is to recognize the trend. Identify those suppliers who sell direct and undercut your prices. If you are an ecommerce-only business, there is little point in stocking these suppliers’ products. If they will not support you, stop giving them your business.

My business is slowing going up market. We are changing what we stock into more expensive, collectible items. We are going to trade shows to find those suppliers that create the expensive merchandise and who cater for the more discerning buyer.

In other words, we are turning the question around. We want to sell to consumers who care about the supplier, who want superior customer service, and who seek items that are carefully packed, promptly dispatched, and properly inspected before they are sold.

There is no point doing this for the lower-value goods. Whilst a true collector may still require perfection for a $10 item, it is not cost effective for us to achieve. So we have moved into the $50 price point. We will leave the lower-value items to the box shifters and only stock items where we have sufficient margin to achieve perfection.

Finding new suppliers

In our search, we have found some lovely new suppliers. Some completely prohibit sales on the likes of Amazon and Ebay. Others put restrictions (as far as they legally can) regarding selling on those platforms. We anticipate lower sales volume, but a much higher profit per sale.

Both Amazon and Ebay have noticed this move by manufacturers. They do not at all like the idea of items that cannot be sold on their platforms. They are slowly beginning to wake up. They are not happy. They have started to lobby governments. They are playing the “we want to increase competition” card whilst, in truth, they want to bury all competition.

Amazon and Ebay are becoming bullies. They want to control the market. But they are not geared up to deliver quality service for quality products. Amazon would say differently, that the Buy Box is won on a number of factors, not just price. In truth, however, price is the overriding factor. The only other meaningful factor is Fulfillment By Amazon, for products that use that service. But posting, packing, and speed are highly variable for products on Fulfillment by Amazon.

Unless Amazon and Ebay get their way and force manufacturers and suppliers to stop restricting retailers from selling on them, I see a future where there is room for the smaller, niche sites — sites that can develop a relationship with a customer and build loyalty. These sites can get to know their customers as individuals and deliver outstanding service and superior merchandise.

This is the future for the smaller ecommerce retailers. It is something brick-and-mortar retailers have known for a long time: You have to be a destination shop. You cannot rely on passing trade and you cannot afford to have a shop in a prime retail location.

So become unique. Be the best at what you sell. Leave Amazon and Ebay for the less discerning masses.


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Comments ( 10 )

  1. abhi February 11, 2016 Reply

    Such a well written piece Richard! We concur – many of the successful businesses we work with have fanatical customer loyalty because of their outstanding service along with their unique products.

    The mom and pop offline stores may have lost out to big box retailers, but online they have a fighting chance to survive and thrive.

  2. Sean BP February 11, 2016 Reply

    A really good analysis – thanks Richard !

    One additional factor is Google. They’ve signalled a strong intention to go head-to-head with Amazon, by adding a “Buy” button to Google Shopping. We’ve already seen them enforce their “no watermarks on images” policy with a remarkably heavy hand, so it looks like they have decided to make the merchant invisible in the same way as Amazon do.

    If Google do this, it’s only a matter of time before they insist that all advertising for tangible goods is directed through Google Shopping, where they will hide direct links to websites. Other forms of marketing (content, social media) could become far more important for e-commerce businesses as Google struggle with Amazon to dominate the sale of physical goods online.

    In the process, it’s likely a lot of smaller online businesses will become collateral damage as buyers pick up individual products on price alone instead of going to websites to build shopping baskets. Google have moved very far from their original idea of “Don’t be evil” !

  3. Mike Straw February 11, 2016 Reply

    Great points Richard and very informative. Do you have any suggestions for us small, new guys?… like Shopify for my shopping cart?


  4. Jason Lancaster February 12, 2016 Reply

    Fundamentally, reselling someone else’s product doesn’t add a ton of value. As a result, margins are only going to become tighter for etailers that resell only.

    This isn’t to say that there’s no room for resell etailers, or that I don’t have sympathy for the problem of shrinking margins…but margins reflect added value. It would be weird if etailers margins stayed as high as they are right now.

    Looking ahead, etailers are going to have to find a way to differentiate themselves. For some, it will be sourcing unique or obscure products. For others, it will be about giving away as much as possible and chasing volume. However, we’re advising our clients to investigate importing and white-labeling to create branded products.

    A branded product is a game-changer in our industry (auto parts and accessories): Consumers place a higher value on a manufacturing brand, margins are higher, and distribution options are considerable. Brands need to invest in marketing, but (so far) marketing costs are low enough to justify this investment.

    If you’re a retailer worried about shrinking margins, my advice is to start making and selling your own products. Our clients are often surprised at how willing manufacturers are to white-label.

    • Richard stubbings February 15, 2016 Reply

      I am not convinced that creating a “brand” by simply sticking your label on a generic product is adding value. I am not sure that this has a long term life. You are selling a concept based on nothing.

      • Jason Lancaster March 1, 2016 Reply

        It’s a fair point: Whitelabeling may not add much value to a product. However:

        – Whitelabeled products can be made to different standards and specs…the manufacturer’s choice of material or components might be higher or lower than the whitelabeler.

        – Whitelabeled products can be marketed to different niches. Often times, auto parts brands become associated with a specific activity like drag racing or off-roading. Their products often don’t sell outside of this niche as a result (at least not as well as they could).

        – Whitelabeling can be used to build a new mix of manufactured parts, one that is unique. A brand that sells whitelabeled shocks can also sell whitelabeled suspension kits and whitelabeled wheels. They can then offer a complete package based on this mix.

        I admit that my point may only be applicable to auto parts and accessories. However, in the world of manufacturing, many products are simply “whitelabeled” and/or assemblies of other company’s components. The choice of what to whitelabel – and how to brand the part – impacts sales.

        I wouldn’t suggest this particular “trick” if I hadn’t seen it work. :)

  5. Mikey seller February 18, 2016 Reply

    I totally agree – but i will predict this – the next year or two will see the failing of thousands of small sellers, who have taken their fingers off the pulse. The manufacturers are moving to ebay/amazon, but also the manufacturers are OVER PRODUCING a lot of goods. If someone sells 2 this month, they order 3 next month. But with all the small sellers around, it means that we are STORING more than ever (and prices are dropping, because warehouses are full and no one is re-ordering cuz they are over stocked). So as small businesses go bust, they sell their stock cheap on amzabay. This puts more people out of business, as they can’t compete with the liquidation stock.

    This all helps to force more manufacturers to sell direct on ebayzon.

    That IS the future – manufacturer delivers direct to customer – AMZABAY is the middle man now, not the retailer!

    And Amazon is forcing it that way, by listing PER PRODUCT. One product, one listing. You may as well send it form the manufacturer – that IS whats best for the consumer !

    So the play period is over, folks – its time to find new ways to make money online.

    • Richard stubbings February 19, 2016 Reply

      So true, I see this in my own niche with one particular manufacturer. Selling prices are currently below cost not event taking into account post and packaging. They flooded the market and now retailers are dumping the stock. Even the manufacturer will loose out now.

      I also suspect that Ebay is moving to imitate the Amazon list PER PRODUCT as it is forcing all listings to have the EAN.

  6. Bruce Golub February 19, 2016 Reply

    Didn’t mention the one advantage a small ecommerce business has over the Amazon/Ebay megalith: curating.

    Basically, YOU offer a smaller, more targeted selection of products. Consumers are lazy. Finding the product THEY want from within the 10 Billion on Amazon is not an easy task, especially when the search return yields 100’s of results. Lets say I’m looking for a coffee grinder…

    1-24 of 1,431 results for Home & Kitchen : Kitchen & Dining : Coffee, Tea & Espresso : Coffee Grinders :
    “coffee grinders”

    1,431! Sure I can use the filters and various widgets to narrow that down, but, like i said, I’m lazy.

    Now, I’m going to bet, that amount those 1400+ results, there are probably only 3 to 4 in each price range and feature set worth buying. If I have a small ecommerce site selling such products, I’m going to show those 3 to 4 options, with their price and feature set clearly demarked.

    This is something places like amazon can’t do. True, some of your customers might use your site to decide and buy from Amazon anyway, but many more will purchase from you because you’ve become ‘their expert’.