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Running an online retail business

At a glance

  • Online expenditure in the UK increased by 54% between 2006 and 2007, and you can count on further growth for years to come
  • Start-up costs are low and businesses can be run on a part-time basis
  • Third-party businesses can handle shipping for you
  • Niche markets offer the best chance of success for the small retailer
  • Save the effort of setting up a website by trading through eBay
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Online retailing seemed dead and buried at the end of the 1990s, amid the misery of the dotcom crash.

Even so, for every high-profile casualty such as boo.com, there is a thriving, highly profitable amazon.com.

Home shopping retailers must admit that the days of the big book are over and that the great hope of the home shopping industry is, or should be, the internet

Richard Perks, Mintel director

Banks and commercial landlords are no longer wary of this sector, and neither, it seems, are consumers: UK shoppers spent £46.6bn online in 2007, an increase of 54% on the year before, and the market is likely to grow for a while yet.

"The growth in online retail is due in part to increasing consumer confidence and familiarity with the web," says Victoria Bracewell Lewis, an analyst at market research company Forrester. PayPal and WorldPay, widely used and trusted systems of payment, have helped allay consumer concerns.

With consumers no longer wary of buying on the web, catalogue shopping looks increasingly obsolete. "Home shopping retailers must admit that the days of the big book are over and that the great hope of the home shopping industry is, or should be, the internet," says Richard Perks, director of retail research at Mintel.

Convenience

"The internet is still seen by many as an exciting, new and convenient way to shop from home, while catalogues are seen as old fashioned and downmarket."

As well as security, access to the medium and the attendant technologies has improved dramatically: whereas at the turn of the century only a quarter of people in the UK had internet access at home and dial-up modems predominated, 67% of households now have access to the internet, 85% of which have broadband access. With online shopping now an effective alternative, fewer people are willing to spend their valuable leisure time travelling to shopping centres on increasingly congested roads.

Just as shopping online is easier, so too is running a business online. You don't need an office or a shop, just some high-quality hardware, a broadband connection, several phone lines, a degree of business acumen and some IT skills.

You don't even need to get involved in the day-to-day shipping, as you can pay third parties to handle such operations. An internet business is also more scalable, as you don't need to find bigger or extra premises or hire more shop assistants when sales grow.

Because overheads are lower, you can pass savings on to customers, giving them yet another reason to shop online. It is still possible for smaller, more targeted operations to be run part-time, at least in their early stages, allowing the entrepreneur to keep his or her day job before abandoning secure income for the risks of the marketplace.

You can buy almost anything on the internet these days - even your groceries. Books and DVDs are particularly popular, as are clothes, even though consumers cannot try before they buy.

The market for goods whose 'look and feel' is irrelevant, such as event tickets and holidays, is enormous and growing. There are few advantages to buying such goods from the high street or even over the phone.

 

Niche

With all this growth, it's no surprise that the big names on the high street are focusing more resources on their online shop fronts. A small start-up will find it difficult to compete with the big boys, so finding a niche is the obvious route.

It might be an area in which you have a passion, for example a sport or other leisure activity, or something you have expertise in because of your previous or concurrent career.

Jennifer Mowat, UK country manager at eBay, thinks businesses with a good offline reputation tend to prosper. "Many people have used ideas and sold products that were simply not suited to internet shopping. The models that have worked are offline businesses who have a proven brand and who have moved some of their operations online."

But what if you're building a brand from scratch? The key is search engine optimisation (SEO), the science of building web pages so that they appear as high on search engines as possible.

If you're selling ukuleles, you should be striving to be the top entry when 'buy a ukulele' is typed into Google. Going on an SEO course will set you back a few hundred pounds, but the extra 'hits' could ultimately be worth much more.

The fact is, if you're not on the first page of Google, you're nowhere.

If you're considering buying an existing website, then research the market you're entering into. What are the prospects for the sector? Are there any major retailers about to expand into it?

An even easier, and cheaper, option is to sell your wares through eBay, which offers an off-the-shelf solution giving you access to a huge worldwide market. For some entrepreneurs, the simplicity of trading on eBay was the factor that inspired them to start up in business.

Of course, eBay isn't free - you have to pay seller fees, which vary depending on the level of exposure you want. And you can pay extra to add photographs and other features that give your site a greater presence.

Ebay is a great tool for smaller businesses looking to expand their reach. Whereas a niche business might attract custom from a 50-mile radius to its retail premises, through eBay it can sell products to people in different continents.

One strategy for the potential business buyer might be to seek an ailing business and turn it around by adding a web presence.

Operating a successful internet-based home shopping service could offer more than just profit. Retailers and other corporates remain acquisitive as they seek to increase their web presence.

The main areas of retail growth online are expected to be jewellery, luxury goods, flowers, cards and gifts - in short, goods predominantly bought by women. The internet is no longer the preserve of geeky men: women between 25 and 49 spend more time online than their male contemporaries. And over 65s now spend more time on the internet than any other age group, averaging 42 hours a month compared to 25 hours for teenagers.

Courtesy of widespread broadband access, UK consumers are the biggest online spenders in Europe. "The UK market is hot," says Hellen Omwando, another analyst at Forrester. "It is still the engine of growth in Western Europe, and our figures show that UK online shoppers are not just buying more, but more per head."


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