Start Small: Why Emerging Retailers Are Starting Online

October 28, 2014 Michael Fraiman

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The old adage is more true than ever: You’ve got to have money to make money.

Retailers will boast about the benefits of foot traffic and window-shopping conversion, but the actual number of customers gained in-store are dwindling in comparison to the overhead costs.

Let’s do a bit of quick and sloppy math: notwithstanding the upstart capital costs (you know, what it costs to actually make a store), running a business is not cheap.

Consider the continuous overheads of running a bricks-and-mortar store:

  • Expect to pay between $2,500 and $5,000 a month multiple staffers at an increasing minimum wage;

  • Throw in a few hundred dollars—$500, say—for electrical and water utilities, plus a security system and occasional maintenance of all of the above;

  • Add a miscellaneous few hundred for the little things—pens, paper, receipt paper, new signage, etc.;

  • Worry about a rabid fight for a well-priced lease—which, in case you’ve been living with your parents and have no concept of real estate costs in major Canadian cities, are extraordinary (for anything near the downtown cores of Toronto or Vancouver, $2,200 per month is a low-end minimum; anything farther out of the city centre and you’re sacrificing foot traffic—arguably the biggest boon to having a bricks-and-mortar store in the first place);

  • And, on top of all this, you still need to operate the online version of your store—because, honestly, who doesn’t offer an online shopping experience these days?

The bottom line: physical retail buildings don’t make sense anymore, unless you’re sure you can turn a profit quickly or your profit margins are criminally huge. It’s a tough sell. That’s why most upstarts are skipping straight to the final step: online-only.

Physical retail buildings don’t make sense anymore, unless you’re sure you can turn a profit quickly or your profit margins are criminally huge. It’s a tough sell.

This is no small market, either. Of Canada’s million-plus businesses (as of 2011), roughly 98 per cent of them staffed fewer than four people. Eight-five per cent of those small businesses had internet access as of 2007; we’re betting that extra 15 per cent has dwindled since.

It’s not surprising. Anyone eager to start online has an entire industry built to help them out. Google’s top search results in the field offer zealous proof: For the cash-strapped, “How to Start an Online Business for $100”; for the time-strapped, “How to Start a Small Business in Just a Few Hours”; and, for those who aren’t sure what it looks like to type at a keyboard, WikiHow’s “How to Start an Online Business (With Pictures).”

Skip the cold cash

None of this is to say anything of the suddenly clear and direct customer relationship. Every major retailer wants to move online—they’re garnering email addresses for direct email loyalty programs, and analyzing swaths of big data to customize the shopping experience to individuals, rather than broad groups. Cash is anonymous and outdated. With email addresses and postal codes, business owners can tailor rewards programs to put out cost-effective coupons that keep customers coming back.

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Besides, customer service is more manageable than paying bored high schoolers minimum wage to guard the floor and keep the place tidy. It’s being available at all times, responding to email queries within 24 hours and offering all the product information on a web page that you can’t in-store. It’s just easier to manage.

So it’s not that surprising that small businesses are starting online. You just need a bit of cash for a clean website and production costs. Of course, doing good business is a whole other story.

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