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Could Online Retailers Be Profitable and Grow?

By Mukesh Gupta

Could Online Retailers Be Profitable and Grow? image DSC07920

Most online retailers are not profitable yet and the industry estimates are not looking good either. The online retail industry has so far been competing with each other on price and costly customer acquisition, which in combination does not auger well for profitability.

The prevalent belief is that only at scale (aka, a billion dollar or more in revenue) can these retailers believe to be able to amortize their customer acquisition and marketing costs. This belief stems from the assumption that you need to pay (or offer a hefty discount) for people to shop online and to market (aka advertise) heavily to remain in the customer psyche.

In my opinion, this underlying assumption is no longer true. Today, people are more comfortable doing online purchases that they were a couple of years ago.

I think that it is now time for these retailers to understand that the cost or price based competition is a losing game for all the retailers involved.

It is time for some of these retailers to move into different market categories and start competing on their own terms.

Some retailers could compete on delivery times, some on the merchandise they carry, some on the customer service and some on the sheer shopping pleasure.

Each retailer needs to create their own niche. Also, they need to understand that just because they are e-commerce sites, they need not compete with the brick-and-mortar stores by providing discounts.

The online stores have a distinct advantage over their brick-and-mortar counter-parts – their in-exhaustive shelf space. They need to think about how could they use this to their advantage.

The race to a billion dollars is not worth it, specially at the cost of profitability.

I do hope that we get to see online shopping portals that offer us something unique and start competing on other pillars apart from price soon.

These are my thoughts. What do you think? Please share your thoughts so that we can continue our discussion.