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The pros and cons of an online retailing business

With 10% of the population employed by the retail sector, Britain truly is a nation of shopkeepers.  Whilst high street shops aren’t going away any time soon, it is increasingly popular for retail entrepreneurs to forgo a physical shop entirely in favour of selling online.  With online sales still experiencing double digit growth in an otherwise stagnant economy, selling online represents a huge opportunity for both established businesses and entrepreneurs.

Pros

Online retail has many advantages for both the retailer and customer.  For consumers, buying online has great advantages in terms of convenience and increased product availability.   For cash strapped entrepreneurs ‘online’ has the advantage that the barriers to entry are much lower than traditional retail. In addition, the mechanisms and channels required to sell online, such as online marketplaces, are well established and so there is a wealth of experience and advice to draw upon.

1. Easy to start using online marketplaces
Sites such as eBay and Amazon make it easy to start selling online.  These marketplaces have huge, international user bases which allow entrepreneurs to get selling quickly.  Very limited technical knowledge is required, although a basic understanding of HTML can help to make listings more visually attractive.  There are also very low set up costs to sell on eBay or Amazon, with the marketplaces charging a small fixed charge plus a commission (around 10-15%) if the item sells.

For people with more technical know-how, setting up a transactional website is nothing like as difficult as it used to be and there are lots of solutions available off the shelf at a very low cost or even for free.  OS commerce and Magento are popular open source solutions for creating an online shop.

2. Start small on a limited budget
By avoiding an expensive high street location, an online retailing business can be started on a very limited budget.  All that is required is some stock and an online presence on eBay, Amazon or your own website.  This is all easily achievable for around £2000-5000.  It is also perfectly possibly to start selling from home, especially if the product chosen can be easily stored, for example beads or jewellery.

3. Sales 24-7, worldwide
Unlike a high street shop, sales on the Internet can be made 24-7.  The Internet also opens up a business to an international audience.  Around 20% of eBay sales are international and the current strength of the Euro makes UK prices attractive to people in the Eurozone, even when additional postage is considered.

Cons:

Although online retail has many perks, we must also be aware of the pitfalls.

1. Admin intensive
Running an online shop is hard work.  Creating product listings are time consuming and maintaining the product catalogue is a never ending job.  The recent VAT increase, for example, meant that retailers had to reprice all their products.  In addition all sales should be packed and dispatched on a daily basis.

2. Customer service
There is no getting away from it, customers can be a pain.  Being a retailer involves dealing with the general public and so it is important to be patient.

3. It can be solitary
Running an online retailing business involves very little face to face customer contact and so can be a little lonely.

4. High competition, low margins
Let’s face it, the web is where people go to get bargains and consequently competition is fierce.  Margins in online retail tend of be lower than on the high street and so retailers need to compensate by selling more.

About the author: Trevor Ginn is the owner of Hello Baby. He is also the author of Selling online – a how to Guide for eConsultancy.   You can read his blog at www.trevorginn.com and follow him @trevorginn.

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