January 30, 2017    5 minute read

The Rise of Internet Retail Entrepreneurs

A Changing Market    January 30, 2017    5 minute read

The Rise of Internet Retail Entrepreneurs

Through websites such as Amazon, eBay and Alibaba, a new band of budding entrepreneurs has arisen. Retail has shifted somewhat in the last ten years, particularly after the financial crisis. The internet has gone from underdog to big guns when it comes to retail.The high street has gone from trying to adapt to having to provide something more than the internet can; through

The high street has gone from trying to adapt to having to provide something more than the internet can through specialisation, discount, and customer service. And yet, the internet still wins on some of those points too.

With this adaptation, the rise of charity shops and the expansion of second-hand retailers such as CeX and Game became one of the solutions. Towards the start of this, charity shops were keen to just sell what they had and to sell everything of a product category (such as video games) for one across-the-board price.

A survey in 2008 produced the following data:

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The number of charity shops has risen to roughly 10,500 in 2016, a report claims.

The New Wave of Internet Retail

This led to a new wave of internet retail entrepreneurs. People, especially with the aid of smartphones, were able to use their phones to scan the barcodes of items (video games, DVDs, CDs and books) to see if it was economically viable to buy them and sell them on marketplaces (eBay and Amazon).

Another approach by entrepreneurs has been to buy items in bulk (clothes, toys, teddy bears, etc) and sell them on eBay; either as the whole package or divided into smaller lots.

As trade-in companies such as Momox and MusicMagpie were purchasing a lot of unwanted items leading up to the financial crisis, and especially immediately after, they began selling on Amazon too. Whilst the entrepreneurs were able to make a ‘quick buck’ on the charity shops, the trade-in companies started pricing their items competitively, making sure they were always the cheapest seller.

This led to entrepreneurs either using FBA (fulfilment by Amazon) or specifically targeting items that were in less circulation and thus had higher prices as the trade-in companies didn’t have them in stock.

In recent years, whilst these entrepreneurs continue to sell high-end, high-priced items from charity shops, those stores have adapted to this activity, raising their prices to try to stem this activity from occurring as they try to maximise ‘profits’ too (profits in the sense of the money that goes towards their core activity).

Adapt to Succeed

Some of these entrepreneurs have branched off and have started selling products that trade-in companies don’t sell and many vendors aren’t selling, such as phone cases, sporting goods and watches, from Alibaba. A method called drop shipping is a way for entrepreneurs to test the market.

Should the venture prove successful, these entrepreneurs can start buying in bulk and using Amazon’s FBA to save on storage. Amazon then ships it like their own products and deals with the customer service too. This comes at a cost. The entrepreneurs, instead of paying a commission like when they themselves post the items, have to pay a different form of commission.

This commission is based upon the amount of warehouse space the individual item takes up and for the amount of time that it’s in Amazon’s warehouse. So a DVD that sells within one month would be charged less than a portable DVD player that takes six months to sell. Of course, this is factored in by entrepreneurs as they make decisions about their business model.

Rising Revenues

The benefit, apart from Amazon treating the items as their own, is that Amazon has a partnership with UPS; so postage and packaging is much less than if the entrepreneurs were to send it themselves. FBA has grown vastly, from revenue of $3.412bn in 2010 to $27.738bn in 2015. Data from their accounts have been collated in a graph below:

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(Source: FBA)

With this increase in activity due to internet entrepreneurs, eBay, Amazon and Alibaba have seen a great increase over the last ten years of commissions made by merchant activities. Connecting buyers with sellers seems to be quite a popular economic activity at the moment, and to some extent, it has entrepreneurs paying some of Amazon’s operational costs for them through the FBA process.

Charity shops have benefited greatly from this activity too as it is clearing a substantial portion of their stock without the hassle of selling online. And postal companies, in a time when letters are on the decrease, have benefitted from the rise of parcel deliveries. A report published by Royal Mail in 2013 demonstrated this growth:

15.7% Growth in Parcel deliveries in Q4 2015

“UK parcel volumes grew by 4.3% p.a. from 2005 to 2008 and by 3.7% p.a. from 2008-2013, mainly reflecting an increasing use of online shopping by consumers.”

Online Christmas sales helped boost parcel deliveries by 15.7% in the last quarter of 2015 compared to the same time the previous year, according to this report. Although, parcel volumes do spike leading up to Christmas due to Christmas trading, but this increase year-on-year demonstrates the growing demand that these entrepreneurs are taking advantage of.

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