Why Run an Online Store

It’s strange, after reading of the demise of another competitor, one would wonder why you’d bother to build an online store.  That’s a very good question, and certainly one that I’ve asked myself a number of times.  The profit margins are extremely tight, with both customers and competitors always looking to lower it even further.  There are quite literally competitors in Canada who sell products at a loss – as part of their business plan.  So, why bother?

Love of the Industry

Let’s be truthful here, most of us could be working in another industry / another business and making significantly more than what we are earning doing this.  Heck, from speaking with a lot of B&M owners, the profit levels at B&M stores can be significantly better too.  Knowing the industry, at least you don’t need to learn the product  (as much) as with starting out in an industry that you don’t know.

Low Capital Costs on Startup

This is a tricky one – it’s easy to start-up the business with much less capital than most brick & mortar stores.  Most online stores start running out of their houses / apartments, keeping stock in their spare rooms or living rooms and shipping orders out every few days.  So, instead of $50 or 100k, you probably can start up at $20 or $30k.  Or even less….

Flexible Hours

It’s easier to fit an 80 hour week for an online store than a B&M store around other life commitments.  It’s still not uncommon for me to get online at 11pm and start working after spending the evening with my family.  You can still go out in the evenings, hang out with friends for a bit and then go home and work more on an online business compared to a B&M store.  You put in the same ridiculously long hours, but they are more flexible.  And when you’ve got family obligations too, that can be extreemly important.

Introvert Friendly

If you aren’t a people person, running a B&M store is going to be significantly more difficult. I know, for myself, that there’s only so much interaction that I can deal with at any one time.  Working in an online store puts a ‘wall’ between you and the constant amount of customer interactions, so it’s a lot more introvert friendly.  Answering an e-mail is so much eaier than talking to a person.

Scalability

This is more a theoretical idea than one that I’ve seen yet, but it should be possible to scale an online store much easier than a brick & mortar store.  At a certain point, you’ll max out the sales per square foot that a B&M store can handle at which point you’d have to either move to a larger location or build a second store.  With an online store, your physical location is much less important so moving should be less of an issue while purchasing should be ‘simpler’.  After all, when restocking a game, if you have to restock 10 copies or 2, it’s still a single line on the invoice and search.

I write about the challenges we face as an online store more often than the advantages, so I thought this list might be a nice counterpart.  If you can think of something I’ve missed, feel free to chime in.

Amazon the Giant

I recently was contacted by Amazon to list on their site.  It’s an interesting proposal that I decided not to go ahead with for a number of reasons.  Many of the same reasons for not listing on Amazon hold true for eBay too if you think about it.

a) Lack of transparency

One of my first questions was; can you give me details on previous sales for a few games (like Settlers of Catan) so I could get an idea about my potential gains.  Unfortunately, they wouldn’t share even that basic information.

b) Lack of control

When it comes to listing on Amazon’s site, there are some major advantages.  You get a major boost to sales in the short-term (possibly) as you tap into their marketing budget, their current customers, their design team, etc.  On the other hand, you have no control over any of this.  They are optimising the site all the time – for Amazon.

c) Giving them data

Amazon has a history of using sales data to decide which product category to next enter in their quest to sell everything under the sun.  Now, obviously they already sell a lot of our board games in the US but haven’t done so yet in Canada.  And as usual, when they enter they generally ‘scoop’ the bestsellers and then leave the dregs for everyone else.  And remember – the entire product page is designed and controlled by them, so its easy to tweak the design to give them the best overall profit for Amazon – whether it’s by selling more of the product directly or more via 3rd parties.

Also, we’d be helping them build up their website as we list all our products.  Kind of silly to do all the work for another competitor eh?

d) Lower Margins

Amazon takes 15% of every sale.  So if we sold games at our usual price, we’d take a 15% haircut immediately.  Not a fun thought considering how small a margin we already have.  If we increase our prices by 15%; then we have to keep 2 databases.  Not to mention the fact that they’ve got a strange system for Shipping Costs where each individual item is priced to ship individually.

e) Competing on Price Only

Since there’s very little to differentiate one 3rd party seller from another in Amazon (beyond some basic review mechanisms); you are basically competing on price and price alone.  Not something we’re that interested in doing.

f) Multiple Databases

Not to forget we have to start managing multiple databases instead of the single one we have.  As it stands, keeping stock up to date is a problem, having to do that for 2 sites / series of orders is just painful.

g) No Repeat Customers

Lastly, one of the major things that keeps us as a business afloat are our repeat customers.  With the Amazon system, we lose out on the repeated sales from customers.  We have no way to contact them (e-mail newsletters, twitter feeds, blog posts, etc) to let them know about new products / features / etc; nor does Amazon want us to.  Those customers are ‘theirs’ and thus creating / building customer loyalty to us is extremely difficult.  As such, each product search / page is a new battle for the same customer.  Now, I’ll admit the cost of acquisition of the customer is much lower as it’s all borne by Amazon; but it also means that you never have your ‘own’ customers.

Conclusion

In the end, joining Amazon works for some businesses but not for us.  It’s just not something I’m that interested in.  Could we get additional sales? Probably.  But with it comes numerous headaches and a very transactional nature of business.  In addition, we end up ‘tangoing’ with a big-boy who at any time could shut us down.  There are numerous horror stories of companies that rely on a 3rd party for the majority of their sales that go out of business due to changes / tweaks in the 3rd party’s policy’s.