Online Stores vs. Offline Stores
by Leeia Ladipoh on November 29th, 2007
There are a few different reasons why someone would start an online retail business. The first is fairly obvious: the opportunity to reach a vast market is much bigger online than any offline small retail business could possibly hope to be. The second is the perception that starting an online retail business is cheaper than starting an equivalent retail business offline could ever hope to be.
The latter reason is being questioned by many people who style themselves as online business gurus. These nay-sayers usually put forth the argument that starting an online business is much costlier today than it was less than a decade ago, due to competition and success.
Let’s take a look at some of the facts that are out there with regard to starting up an online retail business.
The Rising Costs of the Startup
The main case against starting up an online business is not so much the cost of starting up a retail business; it’s more about the costs of starting up an effective online retail business. A few years ago the Internet was young, and sites like Google and Yahoo! were looking for some brand recognition. The result was pretty low prices on advertising clicks as well as much lower SEO expectations.
Today, the cost of PPC advertising continues to rise, making it uneconomical for most businesses. At the same time, it continues to be an important part of attracting customers to a site – so big sites which can afford the loss as long as it helps to eliminate competition will continue to drive prices upwards.
In addition, it costs much more for a business to accumulate an inventory to sell than it did a few years ago. Again, a rise in need has meant a rise in prices as drop shippers and wholesalers attempt to make hay while the sun shines.
That’s Fine, But Isn’t There A Bigger Picture?
While we don’t dispute the fact that it is more involved both in terms of effort and money to start an online retail business today than it was a decade ago, we think that those who discourage prospective entrepreneurs from the attempt are not being totally honest, at least in the intellectual sense.
In the first place, they are leaving out part of the economic equation (in the case of online retail, a BIG part) – and that is the potential, and proven, market. No offline business can hope to compare the volume of street traffic to web traffic – it is just not possible. Startup costs were bound to reflect this sooner or later.
Second, many online business gurus made their fortunes, and thus feel they earned their advice-giving hats, when it was EASY. There is more effort required today to start a successful online business, and that’s a fact – but one could choose to see it as a cream-rising-to-the-top situation instead of a negative one.
All in all, when it comes to the big picture, your bottom line will probably be much larger when you operate an online rather than a brick and mortar retail shop. Yes, you will find that startup costs aren’t what they used to be; but then again, this is more a reflection of the success of the market than anything else. And of course, don’t forget all the hidden fees that those trying to keep people from starting up an online business leave out of the equation with a brick and mortar, such as additional staff, additional lease for store front in addition to warehouse, heating, equipment, decorations, and so on.