Posted: 1/15/2013

Product Sourcing is King

The rules have changed

Changes are happening everyday around the web, as we all know. So much though, that at times, its hard to compile all of this information and make sense of where our industry is headed. In this blog, I will attempt to highlight some ideas and theories that I have on how smaller online retailers can continue to stay competitive and sustain their business in the long run.

Consumer demand is moving online
Consumers continue to make purchases for goods and services online. comScore announced this in August and the numbers were again up double digits from the previous quarter last year. Larger companies know this as well. I don't believe you will find one brick and mortar retailer at this point who does not agree that online is beginning to take market share from them. Combine this product research phase or showrooming as Target's CEO called it, and traditional brick and mortar retailers get hit with lost sales to cheaper online competitors.

More competition for smaller retailers
Larger companies are jockeying for position over who will control the consumer demand for physical store-bought items and services. At the moment, purchases are fairly scattered among larger online retailers like Amazon down to smaller sites like, and others. It is still a viable option for smaller retailers to enter the game and win customers. However, these smaller retailers, both new and old, need to make sure that they do one thing right... negotiate strong relationships with manufacturers for exclusive products or control in some way the supply of the products they carry. Any online retailer knows that shopping engines are a cost effective way to drive traffic and sales to their online stores. Shopping engines are a big deal so much so that Google recently launched its Trusted Merchant Program highlighting their desire to capture a portion of the ecommerce market by displaying products above the fold and in plain site of consumers looking to buy. In addition to this, they also started charging for product placement within their engine making it more costly to drive that traffic. This additional marketing expense and increase in competition highlights why it is extremely important for smaller merchants to negotiate exclusive deals and more competitive pricing on the products they carry. If they do not, they face a continued increase in marketing costs and significant decreases in their gross margins on sales.

Sourcing is the key
Smaller retailers should look to expand internet sales and develop relationships with manufacturers or distributors for exclusive rights to products. Selling a product that is over-saturated or also sold to larger companies with better pricing is a recipe for disaster. Gaining access to a product and securing your position with that product is key. Consider manufacturing the product yourself in China and using the capital resources you have to bring that product into the USA. Or develop a key partnership with a larger distributor who will contractually agree to allow your business to sell exclusively online for a certain time period. Again the rule here is to find product that gives you control over supply to remain competitive in an overly saturated online product marketplace controlled by Google and Amazon. Consider manufacturing something that is hand made, locating and selling hard to find vintage items, or sourcing specialty items that traditional retailers will not have access to or do not have the physical space to carry on their shelves. It is still a very exciting and wide-open playing field. The point here is to make sure if you plan on launching an online store that you plan accordingly and set yourself up to be a huge success online. It all starts with planning.

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