Low margins are a problem in many retail segments today. Swedes are price-conscious shoppers, and prices are being pushed down in many areas—could it be that hobby sellers are adding extra pressure?
Many of the large e-commerce players have more optimized processes and lower purchasing prices. They ship enough parcels to secure better shipping agreements, and it is cheaper to run a large warehouse than a small one (you know what I mean). Hobby sellers sometimes have an enormous advantage even over these giants, in the form of lower requirements.
Extremely low prices at times
When you think E-commerce, you don’t always think of Tradera, Blocket, Fyndiq, or similar platforms, but a relatively large share of online retailers sell a significant portion of their products on these or similar marketplaces. Sometimes prices here are so low that it should be difficult to make them profitable—and this is the very point of this article: not everyone has to be profitable.
When you choose to compete on price, the one with the lowest costs wins. Traditionally, being large comes with major advantages—economies of scale. But someone with no premises costs and who does not value their own time has lower costs than even the most optimized operator making the best use of their facilities and staff. If your inventory fits in the hallway cupboard you already have, and you use your free time to pack and ship goods, you have eliminated costs others can never avoid. The problem is that this only works up to a certain size.
Don’t compete on price
There are countless threads on Facebook and in discussion forums arguing that you shouldn’t compete on price. I share that view—unless your goal is to be a discount retailer, which is also a viable path. Unfortunately, it’s not easy to claim superior service if you can’t charge significantly more, especially compared to someone with no personnel costs at all.
Instead, many smaller retailers suffer when venture-capital-backed companies enter the market and take market share—but this is a natural reaction to price pressure. Anyone willing to lose money on selling a product will sell more than even those with no costs. In many areas, it has proven difficult for companies that grew with heavy funding to transition to profitability, especially if they want to maintain growth. Of course, there are those who have succeeded, and they deserve full respect.
The situation is problematic—what is the solution?
In many segments, my impression is that there are masses of small retailers fighting over small amounts of money. Sometimes there are stronger players as well, but no one seems to be profitable in those segments.
Unfortunately, I don’t have a clear solution to present. What I’ve seen from partners and customers who succeed in these segments is that they take control of surrounding functions. They may have their own brand, their own manufacturing, or simply make money from something other than retail itself. They use their e-commerce operation as a channel to generate revenue from another business.
