Consumer confidence is in the dumps, and retail sales growth was anemic in the first three months of the year. But if you leave the mall and go online, you will find merchants who are feeling pretty good. Despite overall economic woes that are shrinking profits for many companies, the online retail sector just keeps growing. A report this month from Forrester Research and Shop.org, an arm of the National Retail Foundation, lays out the numbers: Online sales grew 21 percent to $175 billion last year, and the report forecasts 17 percent growth this year, to $204 billion.
Like Costco and Wal-Mart, which have also weathered the weaker economy, the Internet provides savings that have attracted cash-strapped shoppers. Scott Silverman, one of the researchers for the report and executive director of Shop.org, says, "The online retailers seem to be resilient to the economy at this time. There's definitely some shift in spending from offline to online."
Why should small businesses be excited about this news? After all, big companies like Amazon and Overstock rule the online retail world. But there's evidence that small businesses can shine online, at least compared with the results their bricks-and-mortar small retail counterparts are showing. A 2007 report, also from Forrester, found that small websites by entrepreneurs drive one fourth of online retail's revenue.
Online retail can suit small-business people because start-up costs are low. They just need some Web savvy and a computer. Many work out of their own homes, keeping operating expenses to a minimum. Plus, "they don't spend a whole lot of money on inventory until inventory is sold or stocks are really low," explains Dawn Rivers Baker, who runs the MicroEnterprise Journal.
That does not mean small online retailers have it easy. Trying to compete with Amazon and other behemoths is daunting. But with the right strategy, an entrepreneur with limited resources can cash in on the boom in online retailing. Derek Stafford, who founded and runs the website Lughnassadh Books, sums up his outlook this way: "One of the best ways to compete with Amazon is not to."
Stafford has been selling used books from his website since 1999. In the early days, he says, he would sell pretty much anything he could find. But now, he says, "I've gotten more and more specialized." He stopped selling all fiction except Harlequin romance novels, for which he discovered a distinct niche market. This focus gives him a brand that distinguishes Lughnassadh from the big boys. He's trying to create a comprehensive listing of all the Harlequin romance novels to further develop this brand and establish himself as a one-stop source for genre aficionados. "Even if I can't be the seller, I want to be the source," Stafford explains.
Another way for small retailers to distinguish themselves online is to do what comes hard for large companies: build relationships with customers. The Internet can be an anonymous place with none of the warmth of walking into your neighborhood store. But small-business people have found ways to genuinely interact with their customers online. Unlike most online retailers, from whom customers get automated E-mail confirmations that their orders have been shipped, Stafford says he writes personal messages for each order to let the customer know that he's really looking at it. "The kind of thanks that I get is really the telltale," he says. "Everything I send out gets some sort of thank you." He also recently added a forum to his website, where visitors can post questions and interact with one another.
The news is not all good for small online retailers, though. No matter how well you design your website and market it, not everything can be virtual; you still have to get your product in the hands of consumers. And shipping costs are rising, mainly because of rising fuel prices. The U.S. Postal Service is planning yet another rate increase, effective May 12. A Forrester Research survey released in April found that 35 percent of online retailers plan to use promotions like free shipping. But 84 percent of those said they had previously used those promotions just in the past year.
Stafford, like Amazon, runs a promotion offering free shipping to customers placing book orders of $25 or more. But he says he will re-evaluate this policy in light of the coming postal rate increase.
Shipping costs don't seem to be slowing the growth of online retail, but entrepreneurs looking for a vibrant niche in a weak economy might want to establish themselves online soon. Silverman says the currently impressive growth can't last indefinitely. "Just through the law of numbers, the growth pace is going to have to slow down," he says.