Finding Your Niche in the E-Commerce Ecosystem

After an exceedingly tough year for businesses in virtually every sector, reports of online sales from November 30, or “Cyber Monday,” as it’s often called, offer hope for the turnaround so many people have been waiting for.

Initial sales reports from e-commerce sites showed a 19.6 percent increase over last year. This is an incredible turnaround, given that last year was the first year that online sales for the Monday after Thanksgiving decreased. While online purchases represent only 10 percent of the anticipated volume of holiday sales, the savvy entrepreneur should be thinking about the best ways to capitalize on the one market segment that’s growing at a decent clip.

The Internet has been called by many “the great equalizer.” One of the best things about selling online is that virtually anyone can start a business on the Net with far fewer fixed costs than a brick-and-mortar approach. That has made e-tailing an incredibly popular form of self-employment, especially as more and more people find themselves looking to make a living in these difficult economic times.

However, the low barrier to entry is something of a double-edge sword. The relative ease of building an e-commerce business means that there is a constant stream of new competitors. For the small business owner or prospective Net-preneur, I have this very simple piece of advice: Specialize.

4 Kinds of E-Commerce

Simple advice it may be, but many new sites fail because business owners do not understand just how critical it is to be incredibly strategic about what inventory to stock. When I scan the e-commerce landscape, I see four kinds of businesses. The first are the online arms of the big box stores that everyone is familiar with. The second and third types are the kinds of online retail sites that don’t perform as well as they should. They’re either the modern day equivalent of an Old West general store, or they’re so incredibly focused that they only sell extremely niche items like Faberge Imperial Easter Eggs made in 1918. (Two were made, but neither was delivered.)

The fourth type of e-commerce Web site falls somewhere between the last two. It is the most likely of the independent sites to succeed in a convoluted market. The savvy entrepreneur who designs an online store that is focused but not pigeonholed knows the risks of doing otherwise. A store that’s too general in nature is hard to differentiate from the competition. It’s also harder to stock with goods — and finding the best prices for so many items makes sourcing a real challenge. Sites that have too narrow a focus may find they have an incredibly small target audience, and they also run the risk of becoming obsolete if consumer tastes change or a new product removes the demand entirely.

The Joys of Specialization

If those pitfalls aren’t reason enough to encourage the right balance of specialization, here are some of the upsides of a well-conceived product line:

1. Scalability — If your online store has a limited range of products that are similar in nature (e.g. leather goods ranging from wallets and purses to satchels and luggage), you might be able to source them all from a few dedicated vendors. By consolidating your spend, you can negotiate better rates and enjoy the same economies of scale that benefit larger stores.
2. Easier Market Research — To effectively market products on your site, you’ll need to know a lot about each item, who else offers the product, price ranges, consumer preferences, etc. For each distinct product you offer, the amount of time learning about the market will increase multiplicatively. With a narrower band of goods, you can more easily know the competitive landscape and stay on top, if not ahead, of emerging trends.
3. Loyalty — Another upside of specialization is increased customer loyalty. A shopper might buy a pair of gloves from you after reading positive reviews of their quality and your customer service. However, when that shopper comes across bulk tubs of holiday candy on a return visit, they might think twice about whether you’re the best place to make the purchase. If that same customer is looking for a new leather jacket to match the gloves she enjoys so much, specialization gives you a much better chance of earning that repeat business.

Step by Step

So, if you’re considering establishing an online store, remember to keep your focus narrow. In addition the benefits listed above, it’s also a good idea to start with a few less-expensive items in product line you want to sell. If you’re a handbag enthusiast and want to share your love of leather goods with the rest of the world, start by selling gloves, wallets and key chains.

Start small, and expose yourself to less risk. Build your customer base, marketing lists, and industry knowledge while your procurement, IT and shipping practices are put in place.

When you’ve earned a tidy profit and feel comfortable with the operations of your e-commerce business, reinvest in those luxury bags you enjoy so much, and reach out to your established customers to show them what’s new on offer.

And don’t forget to email me a link to your site. I’m in the market for a new satchel.