Rise of the online retailer

conventional retail advertising. For a few hundred dollars a month online retailers can get a very prominent banner on a tech forum or tech website and very quickly gain exposure for their business.

Online strategy

Viktoria Kulikova, national marketing manager at Altech, says online retailers have more aggressive buying habits, which can lower the profit margin and cause price erosion.

Anyware’s Huang believes online retailers are facing the danger of ever-shrinking margins simply because price transparency is a norm on the Internet.

These retailers must find ways to differentiate, he believes.

Price search engines such as www.pricewatch.com.au and www.staticice.com.au give consumers total ease to compare prices, according to Fernandes, and savvy Internet retailers soon learn who to avoid and who to trust.

“As margins decline, the Internet allows retailers to have a store open 24x7. In fact for the past two years we have stopped weekend trading and simply service customers via the Internet. We also reply to email 16 hours a day, and many orders and deals are done at night via email,” Fernandes says.

Picking an innovative and unique product at the right price point is the key to making an online shop front work. Net users are bombarded with advertising everywhere online so if the banner does not stand out or is not relevant to the market it will be ignored. There are a lot more players in online computer retail who a very technically focused as opposed to sales and marketing focused.

“A lot of these guys are more of the ‘work from home’ or ‘one-man band’ type retailers,” says Tully. “At the core, they can really only compete on price and to some degree can offer personalised service but in the long run a business selling at 1 to 2 percent margin will not survive as the business grows.

“I think the computer industry in general has seen sales, particularly retail sales, flatten out ... I’d say this is due to several factors surrounding the IT industry as a whole,” he says.

Tully believes when once a storefront expands from its home base and grows overheads and get bigger this is impossible to maintain. If all an online retailer can do is compete on price then it is inevitable that the market will find a way to defeat them.

“I think a lot of the little stores are too tech focused and don’t know much about sales and marketing – again, a core strategy in selling because being cheaper than everyone else is not a real strategy at all,” he says.

Tully believes it is wrong to say online retail does not require much manpower.

There are different expenses associated with an online retail store and a physical retail store but he would not say it is cheaper to run an online store than a shop front.

“It is a lot more complex than most people think; our site is custom written and has been constantly updated and developed over the past six years by an in-house programmer,” Fernandes says.

MegaPC’s Papp says a good reputation is earned primarily by good communication, speedy delivery and looking after the customers when they have problems with their hardware.

However, starting an online store that is also profitable is far from easy, which is why most new online stores fail within a couple of years.

“My advice to anyone thinking of setting up an online store is to skip the difficult stage of starting up and simply buy an existing online store that already has a customer base,” Papp says.

Online versus bricks and mortar

In the competition between online and a physical shop front, Anyware’s Huang says online retailers are in a better position to offer discount prices due to their lower overheads.

“One must understand many of the online retailers don’t even carry stock. They use suppliers’ warehouses as their own warehouse.

“If it was a physical store, it would be terrible for a shop front not to have anything on the shelves,” he says.

There is a general consensus that an online store can be more efficient than a regular retail store as by its very nature it captures a national, even global, market, although it lacks the potential for customers to look and feel the products.

Once again, selling online requires a completely different strategy from selling regular retail. Businesses that are very successful like Harvey Norman and Dick Smith may not see any benefit in selling online.

Every company has limited resources, even massive companies like Harvey Norman or the Coles Myer group.

“If they can get a better return on investing their resources in the physical retail stores then why would they bother selling online?” says Fernandes.
He believes the main difference between an online store and physical shop front is that one offers you the flexibility of online shopping at your leisure 24x7 and a lot of people prefer shopping that way.