I've been writing a series of posts about creating a product. And for the most part I've been sharing things I've been learning and things “I've done right”. Today I wanted to share something that didn't break in my favor.
One of the most interesting parts of making my own product has been learning the difference between what you make and what people will buy.
Earlier this year I set a goal to create my own physical product. And the first few months were really fun.
I was logging a ton of product ideas and I was making quick and dirty prototypes.
- I hand wrote rules on cards
- I attended prototyping events
- I outsourced the design work
- I discovered a professional prototyping service
I moved at lightning pace. After 4 months in development one of the people I played with had no idea this wasn't a professionally made game.
And this where everything slowed down. Just like building a website for someone. The first 80% is easy because it's the stuff you know how to do. I've played enough games and I had a pretty good idea for a game so making the rules for the game was easy. But then I had to venture into a world that I didn't know.
Before you open an eCommerce store you need to do three things:
- Choose an eCommerce Business model
- Choose who you're selling to
- Choose a product to sell
Today we're going to focus on selecting a business model. There are a number of different business models. Some of them like Dropshipping are very easy to get into and require zero startup capital. Others, like Manufacturing, require a huge investment of your time and money up front but give you other advantages down the line. We'll look at these models:
- Making It Yourself
- Licensing (kinda)
We'll look at who to sell to (ex. B2B or B2C) and look into specific products in a future post.
Dropshipping – Business Model #1
The first model is dropshipping and if you're new to e-commerce you might not have any idea what I'm talking about. Because for the most part it's invisible to the customer.
A dropshipper is someone who doesn't actually hold any inventory. They have an online store and they accept orders but they don't do any fulfillment (shipping the products to the customers). Instead they receive an order and then pass along that information to another company who sends the product directly to the customer.
So as a customer I might buy an umbrella from you for $10.00. Your store automatically orders that same umbrella from your supplier and sends it to me for $8.00. You as the drop shipper get to pocket the difference. Oftentimes you'll see dropshippers for manufacturers who don't want to do any marketing. They just want to make goods and they'll use dropshippers, resellers, or others to move their products.
Benefits for Dropshipping
Low barrier to entry. You don't need any starting capital. You could start an online store for $30, accept orders, and pass along that information to your supplier who fulfills the orders. Unlike many other business models you don't have order minimums or need to get a loan from the bank to get started.
No fulfillment or inventory management. You'd be surprised how much work it is to organize hundreds or thousands of boxes. Even if you have a giant garage it's a lot of work to find the right products, pack them up, and send them out. And you also don't have to worry about managing inventory. You don't have to count items and save up money for another large shipment from China.
Location independent. Because you don't manage any physical products you can run your business from anywhere. That's huge. I'm a big fan of being able to work from anywhere and dropshipping makes that easy.
Scalable. One of the best parts of a dropshipping business is that it's very scalable. If you get twice as many orders as normal you don't have to hire extra workers. You just make more money. Eventually you'll need to hire more customer support representatives but you're not as impacted by scale as other business models.
Drawbacks to Dropshipping
Low barrier to entry. For those those astute readers you may have noticed that Low barrier to entry is both an advantage and a disadvantage. It's great for you to get your foot in the door. It's not-great when everyone else can also get in the door. It means as soon as the community discovers a profitable niche anyone can start selling the exact same product and drive your sales & margins down.
Low Margins. To make things worse margins for dropshipping are already razor thin. This will depend from supplier to supplier and industry to industry but you'll probably see around 20% margins.
So if you sell $100 worth of product you keep $20.
And that $20 needs to cover all of your business expenses like customer support, website maintenance, marketing, pay-per-click, and complicated shipping…
Complex shipping. You might be lucky enough to work with one supplier. But even retail stores need to work with multiple suppliers to get all of their product. You'll likely want to work with a few different suppliers to offer all of the products your customers want. The downside is that you'll have to handle complicated shipping logistics. If you have an order with 4 items and each comes from a different supplier that's going to be 4X as expensive as an order from 1 supplier.
Then you have to decide if you want to pass that cost onto your customer or if you want to eat the cost. [High shipping prices is one of the biggest reasons customers leave the checkout](LINK) so many dropshippers decide to eat the cost of shipping which can very quickly turn slim margins into nothing.
To mitigate this you'll want to spend time finding a supplier that can supply as much of your inventory as possible.
Lack of control. It's great that you don't have to manage employees shipping products. It saves you a lot of time. But when they do something wrong and you get blamed for it? That sucks. As a dropshipper you have to accept that many things are out of your control.
With a good supplier expect 1-2% of orders to have mistakes and for you to offer a full refund. With a bad supplier it could be higher than 2% and you'll have to live with the bad reputation so pick your supplier carefully.
Successful Dropshipping Stores
One of the most well known dropshippers is Wayfair. They have warehouses for products but back in 2012 most of their products were shipping directly from suppliers.
90 percent of their products are still being shipped directly from their suppliers
It's a staggering feat of computing that is capable of coordinating the order flow and logistics of the more than 4,000 suppliers that ship out an average of 93,800 items each week
It's impressive they can coordinate between 4,000 suppliers to offer anything under the home goods umbrella. They've built infrastructure around those suppliers to more effectively manage them, shipping logistics, returns, etc. When you want to offer everything under one category and you don't have a spare billion dollars (but really who doesn't) dropshipping may be the way to go.
You may decide to grow from there and have your own manufacturing facilities and warehouses. It gives you an opportunity to test a niche before investing more capital.
Another well known store is TrollingMotors.net. Not because of the trolling motor market but because it was sold by Andrew Youdarien who talked about it on his eCommerce podcast & blog.
On his store's 3rd year in business the owner made $65,000 from the store and there's no telling how big it is now.
Caption: The growth of trolling motors.net source: eCommerce Fuel
As you can see from the growth chart this store actually lost money it's first year. The owner invested a lot in programming and SEO and that took time and money.
After that first year he was able to automate so much of the business.
It takes approximately two hours a day to run TrollingMotors.net. Pat, my sales manager, handles all the operations for TrollingMotors.net
So if you can take three years to build a company to generate $65,000 for only 2 hours a day then go for it. 🙂
Reselling – Business Model #2
Reselling is the arketype of e-commerce and retail in general. The reseller buys products from wholesalers, distributors, and manufacturers and they sell them through their own store.
One of the most common types of e-commerce businesses is a reselling model. You have your own website where you accept orders & fulfill them yourself. You also have to store the products yourself.
Benefits to Reselling
Customer Interest – If you know your niche you already know which products are in demand. You aren't spending a ton of money on R&D to develop new products. You're taking what already works and you're selling it.
Single Source Fulfillment – Since you're storing and fulfilling orders that means you have greater control over shipping costs. And since it will likely all come from one warehouse you can experiment with upsells & cross-sells to get users to add more to their cart so you maximize the profit with each order.
Larger Margins – When you get products at a low cost (usually 50% MSRP) you have some room to play with your margins. You can offer discounts, spend money on pay-per-click advertising, and other tactics to get the sale. Larger margins means you can experiment and change your business strategies over time.
When you have slim margins and the market changes you can't do much to respond to the change. Larger margins means flexibility which can save your business when something unexpected happens.
Experiment on Demand – If your store starts growing you can expand into other areas. Since you aren't inventing new products you just have to find a reseller who already offers these products and stock them. You can then run experiments and see how much profit you're generating and how much interest there is in these new products.
Malleable Overhead – Resellers have incredible flexibility when it comes to overhead. They can choose to run very lean and outsource fulfillment or they can keep it in house.
If you want to keep overhead low you can use services like Amazon FBA or other 3rd party logistics (3PL) companies to store & ship your products. It will eat into your margins but will keep your business completely remote so you can work from anywhere in the world. Or if you want to run your own warehouse & shipping setup you can do that too. This can lead to higher margins for you so you make more with each order but it will take time & energy to manage.
With retail you have the choice to build your own infrastructure and make more money per order or outsource it and run a lean and efficient machine focusing more of your time & energy on your products and marketing.
Drawbacks to Reselling
No Branding – When you are a store selling someone else's products you risk another store coming along and selling the same products and threatening your business. If you sell Apple computers and another computer store opens down the street they can sell the exact same product and put pressure on your business.
To mitigate this you need to add value to your products in some way:
- Expert staff
- Bigger selection in a niche (ex. a computer store could compete with Walmart that has some computers but doesn't specialize)
- Bundling services with products (ex. a computer warranty or free classes with purchase of computer)
Capital Intensive – To be a reseller you need to have capital to buy products at a low price with the goal of reselling them at a much higher price. To buy products at a low enough price you usually need to buy them in huge quantities or order a wide array of products from the same distributor.
As an example I can purchase a small card game printed on demand for $10 but if I order 1,500 games from a distributor for $5 each. If I sell the game for $15 I'll make drastically different amounts:
- 1,500 sales (printed on demand): $7,500
- 1,500 sales (purchased in bulk): $15,000
So you might be able to make twice as much money with you buy in bulk but it requires an upfront investment of $7,500. And most people don't have a spare 8 grand to play with.
Managing Cashflow – Since capital is so important with reselling you need to plan large purchases from suppliers and time those so you have enough cashflow to pay your other bills. You'll need someone on your team who is good with projections and understand how fast you'll get product in, how much it will cost, and how long it will take to start money a return on that investment.
Successful Reselling Stores
We all know about Best Buy, Home Depot, and Walmart of course which all do a fair about of reselling (and other business models like white labeling which we'll cover shortly). There are smaller stores in specific niche's like:
California Fly Shop – they are avid fly fishers and cater to fly fishers. It's a small niche in a specific geographic region. They combine a large assortment of niche products with expertise to help fly fishers. As you can imagine you get infinitely better advice from people in this store (or even just on their site) than you would shopping at a general outdoors company.
My Snacks – You want unique snacks? This is the place to go. That's what they specialize in. They don't go after the whole food industry they go after one tiny piece which in this case is snack enthusiasts. The buy from a ton of different companies to have all of the snacks you want to order in one place.
HoopsKing – a site about teaching your kid to be the best basketball player. It has a lot of informational products about how to train your kids to be great at basketball and sells the physical tools that compliment their information products. They make their own information products but they resell all of the equipment.
Reselling is a great way to get into e-commerce and maybe someday create your own products. It isn't as defensible as white labeling or creating your own products but it has a lot more margin and flexibility than drop shipping.
White or Private Labeling – Business Model #3
When you go to a grocery store and you see the name of the grocery store on a can of food that's called white labeling or private labeling. It's where someone else makes the product and they put your label on the product at the end. And it's a step between reselling and creating your own product.
Benefits of White / Private Labeling
Private labeling is very similar to reselling so most of the benefits & drawbacks are the same. But there's a few extra benefits that are worth pointing out.
Branding – the biggest benefit is being able to do your own marketing and branding. You can create your own name, description, choose images, etc etc. Anything you want to do you can.
Loyalty – One of the things that comes with building a brand is that you'll get customers loyal to that brand. If you resell sun glasses it will be hard to keep loyal users. If you private label great sunglasses people will remember you and you can market to them and get another sale from them.
Avoid Price Comparisons – since you aren't reselling the exact same product your potential customers can't compare prices as easily. I know plenty of consumers who look for a SKU and then do a search for the cheapest version of that SKU. When you private label you can make your own SKU or not have one at all.
Greater Margins – When you're selling a brand name those generally cost more. If you sell a similar (white labeled) product for the same price you'll be able to keep a much bigger slice of that revenue.
Drawbacks of White / Private Labeling
Again – many of these are the same as reselling since they're so similar. But there are a few extra considerations.
Build A Brand – One of the harder things about private labeling is it forces you to create your own brand. If you sell sun glasses you have to convince users that your sun glasses are just as good as another brand. If you were to resell Oakleys you don't have that problem. People already know they're quality sunglasses and if you have good pricing making the sale won't be as hard.
Building a brand is hard work and it can take a long time. But it's usually worth it for some of the benefits above. But if you're looking to make a killing in the next year it's not the right strategy for you.
Capital Intensive – since private labeling includes the manufacturer adding your logo to the product this is more capital intensive than reselling products. You might have to order 5 or 10 thousand units 6 months before you need them.
When you resell products there's a lot more flexibility to buy products on a shorter notice and you don't need as huge quantities. These requirements will vary industry by industry but typically white labeling a product requires a bit more capital & time.
Successful White Labeling
Floyd's Barbershop – I go to a mens barbershop called Floyd's. They do great haircuts and at the end they always offer to gel your hair. They use their own private label gel. So if you want that exact gel (and I usually do since I know nothing about gel and just want to buy it without doing hours of research) you have to get their gel.
It's private labeled so even though I probably could find a very similar product somewhere else I'm just going to get theirs since it's easy
The Chocolate Therapist – One of my favorite local stores is The Chocolate Therapist. They focus on the health benefits of chocolate and writing and educating people.
They got started private labeling a local chocolate shop's product. They sold books and education on their site and they also offered chocolate they certified and sold under their own label.
Many years later they were profitable enough to buy that chocolate shop and now they make their own chocolate. In this case private labeling created a money making machine that eventually let them grow into a much bigger company.
Presto! – One of Amazon's household cleaning brands is Presto! Instead of recommending users buy Bounty or some other expensive brand Amazon can direct users to their cheaper option. Customers can still buy Bounty but for users who want to save a little Amazon has a cheaper brand and Amazon makes more money off of it as well I'm sure.
Manufacturing – Business Model #4
Manufacturing is one of the most challenging models because it not only requires huge capital investment to buy thousands of units but you also have to spend time and money developing a product from scratch. Having said that it's one of the most defensible models. If you create a hit product you'll be able to reap the rewards for a long time before someone can come close to copying you.
Benefits to Manufacturing
Unlimited Imagination – One of the best things about manufacturing your products is that you can do just about anything. Do you want to make a mattress with a hole in the middle so you can cuddle your romantic partner? Well when you manufacture your own products you can actually do that.
In all seriousness having this flexibility means you can control everything. The color, size, shape, the packaging, etc. If you have a specific experience in mind designing your own product and getting it manufactured is the only way to do it. otherwise you have to live with other people's choices.
Intellectual property – When you manufacture your own products you have access to all three types of intellectual property: copyright, trademarks, and patents. And you can use these to protect your brand and product. Trademarks protect you from other people using your logo, copyright prevents others from stealing your designs, art, and other creative elements. And the most powerful are patents. If you invent a new feature you can patent it and have a monopoly selling that product for years.
Long Process – If you don't have a patent it's still very hard for someone to copy you. If you start selling the new hotness and someone wants to copy you they'll have to reverse engineer your designs, find manufacturers, get quotes / samples, select a manufacturer, order products, wait for them to arrive, and then finally start selling them. This could easily take a year for someone else to copy what you did. And in that time you could improve your product and dominate the market.
Manufacturing is a long process which can be a good thing to protect what you've built.
Drawbacks to Manufacturing
Prototyping – One of the harder parts of manufacturing is actually making the product. It's not just coming up with the idea but executing on that idea. How do you make a design and how do you turn that design into a prototype? Some creators get stuck on this step even when they have a good idea. You need to have access to the tools to make a prototype.
Some industries have professional prototyping services. Since I'm interested in the board game space I found a company which prints games on demand which is perfect for my needs.
If you don't have a prototyping service for your industry hopefully you can find a makerspace where there are 3d printers, laser cutters, hand tools, and a community around design.
Language barriers – When you're working with a manufacturer there's a good chance you'll be working with someone in China (the costs are drastically lower). But working with China involves some extra complexity in terms of shipping, customers, and most challenging of all language.
As you're refining your design with the factory or just trying to explain your design you'll run into language barriers. And if they interpret something incorrectly you could have a complete broken product or a subpar product.
One thing you can do to mitigate this is work with a manufacturer that has native english speakers on staff. I've gotten quotes from multiple factories and I've had the best communication with a manufacturer with native english speakers. Even though they might cost a little bit more it's worth it when you're dropping $10,000 on a manufacturing run.
Branding – As mentioned earlier when you sell your own thing you need to develop a brand. And if you're developing something novel like glasses that help colorblind people see the full color spectrum (see EnChroma below) you have to do a lot of work. People have to know who you are and they have to believe your product works.
Costs – There are manufacturing costs for thousands of units and R&D costs. The R&D costs including prototyping. There's also a huge time factor. If you come up with a great idea today. It might take 2 years to get it online to accept that first dollar.
Hickies makes elastic shoe laces that you can add to any shoe and prevent you from having to tie your shoes. They have a patent on this technology and they are absolutely crushing it on their own site as well as on Amazon.
EnChroma makes glasses that let color blind people see colors they can't normally see. They had trouble getting people to purchase their pricey ($350) product until they started included multi-color balloons with their product and their customers started sharing unboxing videos which convinced people the product works and the company started to grow.
Ripple Rug one cat owner realized their cat was playing with a folded up rug with holes in it (they accidentally created a prototype!). They figured other cats would also like to play with a toy like that. So they manufactured it and started selling on Amazon.
EnChroma and Hickies have patents which gives them a huge amount of protection. And since it took years of R&D – especially for EnChroma – to develop the technology that is a fair trade off. A limited monopoly for a short period. For the Ripple Rug they've build a brand on Amazon and on their own site and they're a go-to cat toy. Someone could copy them but they already have a huge brand and a ton of reviews on Amazon.
Licensing – Business Model #5
There another business model that's worth bringing up even though it isn't technically ecommerce. And that's licensing. If you can create products but you don't want to deal with manufacturing you can sell or license your ideas to stores / manufacturers. There's a person in Denver who does this. He's created 10+ products and sells them to companies who can use his products.
They can skip years of R&D and have a patent and he gets a big pay check and doesn't have to run an online store.
I bring this up for people who really want to invent products. You can always start inventing a product and look into manufacturing and other costs and then decide that's too hard. You can still sell or license your design.
One of the more well known licenses is KFC's Popcorn Chicken. They didn't invent the way to create that popcorn effect. Someone else invented it (yes you can invent novel ways to cut meat) and licensed it to KFC.
There's a lot of ways to make money online. And there is no right way. You'll have to look at what you're good at, how much time & money you're willing to invest, and what you feel good doing to determine what business model you want to use.
Also consider that you can always transition to a new model. The Chocolate Therapist did that. They sold their own books and white labeled chocolate. They eventually had enough money to make their own chocolate (they actually bought the original white labeler!). So this doesn't have to be a decision that lasts forever. You can always try something and then pivot.
Once you pick a model that works for you you can start drilling down into specific products you want to sell and who you want to sell to. We'll cover that in future blog posts.
I’ve been working on a post about e-commerce business models. It’s over 4,000 words so it definitely needs some graphics to break up all of that text.
And after looking through a few different stock image sites for over an hour here are the images I could come up with.
While these are all relevant they’re all vastly different styles. And as much as I tried to find graphics with a similar style I couldn’t. Finding similar graphics for one post is one thing. I also want my graphics to be consistent across my entire blog.
So what are my options?
Spend Time Finding More / Better Stock Photography
I could certainly spend more time looking for stock photography. I could use multiple websites or look large sets of photography so it’s all the same style. And when I don’t find something in that style I could spend time customizing the art.
Instead of spending an hour looking for stock photography it might be 4 hours to find art and then customize it.
A Part Time Designer
I’ve hired freelance designers in the past and they do amazing work. I had a project earlier this year that cost me about $2,000 and the work was phenomenal. Unfortunately my business doesn’t generate enough revenue that I can drop $2,000 on all of my projects.
I can probably do one project like that a year and have a few smaller projects.
Hiring a freelance designer – or if you have enough work hiring a full time designer is definitely the way to get the best quality work that matches your brand perfectly. Of course it’s expensive but that’s what it costs for high quality.
A Design Service
I’ve seen ads for a service called Design Pickle. They’re one of those businesses where you pay a fee every month and then you get unlimited work from them. There are plenty of places where you get unlimited tweaks to your website for $80/month. This is similar but for design.
In this case it’s $370/month. That’s a lot of money and if I don’t use it in a particular month I’d feel like I wasted a lot of money. And they do have a list of things that are out of scope (ex. no logo concepts)
$370 per month is $4,440 per year. So if I use it consistently it’s just a little more hiring a freelancer for one big project and a few small projects per year. And I’d feel like I can use them to tackle these small problems – like getting consistent graphics on my blog posts. Something that nags at me but I don’t have the skills or time to solve.
As businesses grow it can be awkward to move from a do-it-yourself mentality to using professional services to hiring full time professionals. There isn’t a perfect time. You just have to take your best guess and then move forward.
I’m going to try this service for a few months. I should have enough work to make it feel like it’s worth my while. The biggest unknown is what is their bandwidth? How fast can they turn projects around?
If I can get a small task (ex. make a header image for this blog post) back in 1-2 days I think it might be worth it.
Two weeks ago I attended one of my favorite conferences. I’ve been doing marketing & e-commerce for years and I’ve been to dozens of conferences so I’m pretty familiar with the topics and what can be done so when I go to an event it’s easy to jump in. And I have lots of friends in the industry so I'll usually run into someone I know which makes the conference much more comfortable.
Out of my Depth
Last week was a different story. I attended a workshop for pops.
week 6 (April 6-10) week 7 (April 13- 17) we will cover IKARIAN POPS & DROPS & ACRO-YOGA WASHING MACHINES pic.twitter.com/0rEMbivEtk
— Pitch Catch Circus (@DuoAcroSchool) December 18, 2014
Pops are a technique in acroyoga where you work with a partner to throw them in the air and then (hopefully) catch them.
I’ve dabbled with acroyoga but I’ve only tried pops once. And everyone else at this event have done pops numerous times. And when I walked in I realized how out of my depth I was.
- I didn’t know a single person
- Two people started talking about an acroyoga event I’ve never heard of and it sounds like they’ve gone to it 5 years in a row.
- I’m asked how much experience I’ve had with “Icarian”. I didn’t know what that word even means – and I found out it’s a specific type of pops.
Here I am trying to learn the basics about pops and I accidentally signed up for a specific type of pops and I’m with people who seem to know each other and have been doing this for years. I feel completely out of place and the workshop hasn't even started.
When the workshop starts we form groups of 3-4 people and it’s clear I’m the person with the least experience.
- I was asked to “receive more”. I had no idea what that phrase even means. It turns out it means you need to decelerate your partner when they land.
- There were prerequisites which I barely grasped. For a pop from reverse bird to reverse throne we had to start with foot to hand. And I’ve only done that once so I had to spend time covering the basics.
Foot to hand:
I also realized I might have been one of the least fit people in the room. And in a physical practice that’s important. There were 7 people in the workshop and 3 of them had six packs. VISIBLE SIX PACKS. Who are these people that have time to develop 6 packs!?
My group was amazingly kind despite my novice status.
- They helped me cover the pre-reqs
- They trusted me to catch them when I popped
- They were patient with me and never rushed me to finish
Starting is Hard
The point of this article is that I’m reminded how hard it is to join a new community. There’s jargon you don’t know, pre-reqs that you didn’t know about, and humans tend to cluster with people they know. And that’s all after you sign up. You have to first decide to join the community which is a whole different journey.
Having gone to the workshop and feeling completely out of my depth I now feel confident I can handle anything. I already faced being the newbie and I did fine. In fact I did great. I learned a lot and by the end of the workshop I completed almost all of the poses the more experienced members did.
Help Others Starting
If you notice someone is new help them out. It's scary to join a new community where you don't know anyone and don't know what you're doing there. You don't have to learn their life story but chat with them.
I'm pretty confident in the WordPress, marketing, and ecommerce worlds. I'm still new in the acroyoga world and I know I'd appreciate someone approaching me and chatting with me instead of feeling live I have to invade an established circle of people.
Here's how our workshop ended with a reverse throne to bird.
Quite often in the WooCommerce world you'll hear “make sure you use a good host” which sounds helpful but when you don't define what a good host is it becomes meaningless. And for many first time store owners how are you supposed to know what you need and if a host has those features?
I've heard a lot about Liquid Web but I hadn't actually seen the backend until recently, when they gave me an account to play around with. So I'm going to show you how to create a brand new WooCommerce site using Liquid Web's Managed WooCommerce Hosting plan.
A friend of mine runs a WooCommerce store selling sunglasses so let's recreate that site using Liquid Web's infrastructure.
Note: Liquid Web paid me for a few hours of my time to review their hosting.
With Gutenberg getting closer and closer to being merged into WordPress core lots of plugins are thinking about ways they can take advantage of the new interface.
WooCommerce has been preparing for Gutenberg since last year. They're replacing the old
[products] shortcode with a Gutenberg block and overall it looks great. If you want to display a specific set of products on a page the interface is phenomenal.
This is a great place to start and store owners can play with that functionality the day Gutenberg comes out. While this is a great place to start it's no where near where it's going to end. Gutenberg gives site builders so much control over their blog posts & pages. And eventually I'd like to see that same control applied to product pages.
Working in e-commerce is being a part of two worlds. The retail world & the online marketing world.
In the online marketing world every few months you see an article about how SEO is dying or already dead. After a few years of this you realize it's not dying it's just changing.
In the retail world we have the exact same thing. Every few months you see a big brand close some stores and everyone screams that retail is dead. And just like with online marketing – it isn't actually dead it's just changing.
Experiences Over Stuff
One of the biggest factors is how millennials spend their money. Millennials by and large prefer experiences over stuff. They're far more likely to spend their money on travel, good food, and unique experiences:
* Air travel has increased every year in the past decade (except 2009)
As our demographics change our retail industry should change to reflect that. And it's a hard change for stores. They have to throw away everything that worked for the previous generations and start experimenting all over again.
And our current retail industry is all about stuff. Most brands can't offer an experience so millennials spend their money elsewhere. We buy stuff on Amazon. Sell us something different or unique in a store.
Retail Can Be Advantageous
You don't know the advantages of retail until you work in e-commerce. Retail let's you chat with your customers. You can learn about customers & more importantly solve any problem they have instantly. They don't have to spend 30 minutes searching for the right product (what's the name again???) they can ask someone in store and they'll direct them to the right place.
It's also a richer medium. Online stores have live chat at best. A face to face chat gives you 90% more information just from reading body language, tone, and facial expressions. We inherently trust those conversations more than a text chat.
If you want an example of who is doing it right look no further than Apple. Apple makes a killing in their retail stores (more than $5,000+ per square foot). And they do this by employing people who actually use & love the products they sell. Any question you have they likely had the same question and they can help you find that solution because they're genuine fans of the product.
You can also go in for minor troubleshooting at any point and they'll usually help you for free. Anecdotally – I went in with a charging issue and they cleaned the lint out of my charging port and sent me on my way in about 5 minutes. That builds a lot of trust for them.
And lastly, many Apple products are an experience. I went into an Apple store just to look at the Apple Watches when they came out. It was fun to look at them even if I don't want to spend the money on them right now.
Why Retail Is Struggling
Toys R Us announced they're closing their stores and while it's sad this really isn't surprising to me.
They're a store that sells stuff. And you get get that stuff on Amazon or eBay for the same price if not cheaper.
You don't get any special care when you go into the store. The employees are minimum wage workers just trying to get a paycheck so they rarely know anything about the products. And if something breaks you probably just order a new product online you don't take it back to the store.
They didn't offer any compelling reason to go to the store instead of buying the toy online. So people did just that. They stopped going to the store and they started ordering online.
If they evolved from a place to buy toys to a place to play with toys. They already had a video games section. Why not make a mini arcade where kids could pick a game and console, play it, and then buy it?
And this is something that could have moved the needle. Be a place where parents could bring their kids to play. And everything the kids play with can also be purchased to take home. This could be done with video games or even regular toys.
I'd charge $4 per kid. And that entry fee can be used as a deposit towards a toy at the end of the day. So you'd make money whether the kids just played or if they used that downpayment to buy a toy.
This is something Amazon or any other online retailer can't compete with. They might beat you on price. But you provide an experience parents & children love and a unique advantage in that kids can play with the toy before they buy it.
We've Invested Too Much In Stores
I want to bring up one last point. More retailers will close. Don't be afraid by it. It's what happens when you over invest. Which is precisely what the US did.
The U.S. has 7.3 square feet of retail space per capita, versus 1.7 square feet per capita in Japan and France.
We've spent so much money on stores and all of that retail space takes money to operate. Unless we spend 3-4X as much as Japan & France there's no way we can maintain that square footage. We'll either have to up our spending or more likely let stores fail and recalibrate after that.
In the meantime if you're in retail make sure you offer value. If you just sell stuff and it's not the cheapest price you're probably not going to last long.
I've been thinking a lot about how we learn. And more and more I find value in experiential knowledge (things you learn by doing) over academic knowledge (things you learn by reading). For example…
- I learned how to skydive from someone who has skydived thousands of times.
- I've talked with parents about their experience raising their kids – rather than reading a book about raising kids.
- While preparing for a marathon I read a ton of blog posts about running and the advice I really appreciated was from people who actually ran marathons.
- I want to learn computer science from someone who has participated in computer science projects. Not someone who just repeats what their professor told them.
- I practice acro yoga and when I want to learn a new pose I do so with people who have done those poses before – not with people who just read about them.
- When I moved to Denver I decided to move and live in the city for a year and see how it went. Worst case scenario I would move back to Wisconsin. I looked up all of the stats before moving (crime rate, weather, cost of living, etc.) but ultimately I just couldn't understand that information until I actually experienced it.
You can consume a thousand articles, blog posts, books, videos, and conversations with people about a topic. But some topics are so big that you really can't understand it until you live it – like moving to Denver. I could pull up every metric about Denver (and I did make a spreadsheet), but I could never imagine what it's like living downtown in a big city versus living in Green Bay, Wisconsin (a much smaller city with very different values).
This isn't to say academic knowledge is useless. It's incredibly useful. Using academic knowledge I realized the Denver has way more sunny days than Portland & Seattle which is why Denver made it to the top of the list. Now, I can't fully imagine what it's like living in Denver surrounded by mountains but I was at least able to narrow down the list of cities based on some really useful data. And from there I had to experience Denver to know if it was the right choice for me.