Despite the dot-com downturn, there is still room for small offline retailers on the Web and good reasons for them to be there, according to industry analysts.
“I think people have to separate what is happening to dot-coms from the value of the Internet to retailers,” Gartner research director David Schehr told the E-Commerce Times.
Schehr believes the real value of the Web to small retailers is its ability to provide an additional shopping channel for their customers. Other sources cite the Web’s use as an information tool by customers who later make purchases in brick-and-mortar stores.
Small businesses appear to be using the Internet as an “information channel,” William J. Dennis, Jr., a senior research fellow at the National Federation of Independent Business (NFIB), told the E-Commerce Times.
According to Dennis, Web surfers are using the Net “as an electronic yellow pages.”
Research Avenue
A report issued by the NFIB in August, “The National Small Business Poll,” said that 58 percent of small business owners found that their sites acted as a stimulant to sales made in the site owner’s real-world place of business.
Other studies have also found a connection between online research and offline sales. For example, a recent Jupiter study concluded that 45 percent of consumers have used a retailer’s Web site to research a product before purchasing it in the same company’s store.
Jupiter also found that nearly two-thirds of the total Web benefit for retailers comes from offline transactions influenced by Web-based research.
Revenue Roads
Although the primary value of an online presence is as an informational channel for customers, small e-tailers are also making sales online. The NFIB found that 24 percent of small businesses were recognizing revenue from e-commerce sales.
Another source of income from Web sites is advertising revenue, according to 21 percent of the small businesses polled by the NFIB. Additionally, Web sites garner revenue through subscriptions and commissions from directing visitors or sales orders to other sites, the NFIB said.
On average, small businesses with Web sites surveyed by the NFIB estimated that 13 percent of their total revenue is generated directly or indirectly from their Web presence.
Slow Stream
Companies that decide to take their business online should not look at the company Web site as an immediate profit center, business consultants say. However, having a company Web site does offer the possibility for long-term revenue growth.
The NFIB found that 27 percent of small businesses with a Web site reported an operating profit over the last three to six months, 38 said they broke even, and 38 percent reported an operating loss.
One reason many small brick-and-click retailers are not yet making a profit on their Web sites, according to Dennis, is that “a significant share of people with Web sites have not integrated their sites into their business.”
Separate Paths
Dennis said that in many instances, the site was a “dangling appendage” created because companies had a “nagging feeling that they ought to have one.”
Dennis advised small retailers to “pull their Web sites in to become part of the whole, rather than leaving them flopping around.”
Integrating a Web site into a company’s total business can be as simple as including the URL on shopping bags and receipts, and making sure that items purchased online can be returned offline, Dennis said.
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In terms of ROI, small business owners, particularly small mom and pop retailers, would be much better off if they wait a few more years before they decide to develop their Web sites.
While thousands upon thousands of small brick-and-mortar businesses now operate Web sites, most of these small businesses, however, are still continuing to incur losses from their Web site operations. The NFIB survey you cited in your article, in fact, shows that more than 70% of the small brick-and-click businesses that NFIB surveyed still aren’t generating any profits from their sites.
The Net, as you pointed out, is now being used mostly as an information resource tool, not as a seller-buyer purchasing transactional tool. While lots of people use the Net to “window shop” and price-compare, only 2% to 3% actually buy anything from any of the sites they visit. Those people that do buy online, furthermore, are far more likely to buy from well known brick-and-click merchants than from the Net’s small site operators.
This situation has not only financially devastated most of the Net’s public Dot.coms, but it’s also causing huge financial problems for thousands of small site operators as well. In my view, no small business owner today should assume the risk of developing a Web site until people develop trust in buying goods and services from small site operators.