Online stores are one of the most in-demand products in commercial development. They are often requested by companies that have been operating offline for some time and have now decided to expand into the online segment. On the surface, this seems like a great idea. Today, you have all the necessary tools to create a website or a mobile app for virtually any type of product and attract leads. Moreover, the eCommerce market has been mushrooming in recent years: in Russia alone, its volume exceeded 5 trillion roubles – a whopping 40% year-on-year increase. But despite all the perceived prospects, we are already seeing the beginnings of trends that will ultimately lead to the downfall of online commerce.
Expansion of marketplaces
An online store is first and foremost a business model, not a website. And the way this model is set up makes it increasingly difficult for vendors to compete with the market giants. To sell goods online, you need to set up a system for delivery, re-delivery, and returns; rent storage space; sign an agreement with a bank or a fintech service for online acquiring; and invest in advertising and PR – it goes without saying, all of this will cost you a pretty penny.
And while marketplaces recoup these costs through the sheer volume of sales, independent stores have to deliver single-piece shipments – and often at a loss, as the cost of courier services and storage space can exceed the return on the sale. To balance this model out, a company must either have a lot of orders or sell high-margin products.
As a result of this trend, more and more sellers are moving to marketplaces, and this has played a major role in the E-commerce boom. In Q2 2022, the share of Russia’s largest online platforms (Wildberries, Ozon, Yandex.Market, AliExpress Russia, and SberMegaMarket) reached 69% of the total volume of online orders in the country. And in Q3, Ozon, Yandex.Market and Wildberries increased their turnover by 93–98% year-on-year.
Issues of profitability
In its early days, Amazon would take an incredibly low commission on sales, which attracted huge numbers of people to the platform, both sellers and customers. Eventually, after gaining a loyal audience, the company increased its selling fees, forcing brands to accept the new terms in order to maintain access to the platform.
This proved to be a great decision in the long run, but it’s important to understand that Amazon’s business model was unprofitable before the price hike. If you want to attract customers to a fledgling online store, you need to offer them discounts – especially as the user expects prices to be lower online than offline. While prices are still low and orders are few, costs are significantly higher than revenues, and the business will need a large margin of safety to keep its head above water during this period.
In that sense, it’s much easier to sell products on marketplaces, as the sheer number of orders minimises storage and delivery expenses. This convenience, however, comes with a potentially hefty selling fee of 2–18% depending on the product category – and that’s excluding logistics, storage and other costs. But it’s still cheaper than launching your own electronic commerce platform.
Shopping trends
One of the factors that define E-commerce trends is shifting consumer habits. Economy of effort has become the overriding principle: instead of using multiple different apps, we’d much rather use just one that provides the widest array of services. This is how super apps like Sber or Yandex emerge – they start offering a plethora of features that range from online payments to food delivery.
The same logic can be observed in E-commerce: marketplaces allow customers to browse through the widest possible range of wares on one platform and to compare prices and offers from different sellers. Users go to the vendor’s website when they need something custom-made, expensive or exotic; for example, things like MacBooks, snowboards, scientific literature or luxury make-up. The same goes for premium and exclusive products: if you need a Rolex or jewellery, you probably won’t be looking for them on Ozon. Other brands will have to face stiff competition from marketplaces.
This doesn’t mean you have to give up the idea of developing an E-commerce platform: for now, many e-tailers continue to survive and even thrive without any presence on large retail sites. But businesses need to consider all future costs in advance and be ready for them to significantly outweigh revenues during the early stages. And keep in mind: it’ll only become more difficult to compete with marketplaces as time goes on.