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Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, September 10, 2010

Exploring the Amazon

A pitchman from an online retailer called Amazon.com tried to sell me on listing my products there. If I bit by the end of last week, they’d have waived the $40 subscription fee for the first month.

Forty bucks a month to reach millions of potential customers? What could possibly go wrong? I watched their tutorials to find out.

The monthly fee is trivial compared to the 15% they skim from the top of every sale. My budget line items – payroll, advertising, bank fees, shipping supplies, etc. – are based on a 50% overall markup after discounts and incoming freight charges. Most of my products are in the 45-50% range. I won’t go below 40%. A few standout items bring in 60% or better, but those tend to be low-priced products of dubious quality. I’ve managed to achieve an average 48.62% markup, meaning that I spend $5.138 out of every $10 to buy merchandise (that’s the “COGS” in my monthly sales reports).

Forking over 15% to Amazon would blow everything away. My company might survive on a 33% margin if sales quadruple; many high-volume operations get by on less. High-volume, low-markup business is so far outside my experience that I’d have to morph into something very different from the one-man, home-based operation that I’m comfortable with now.

I could stock an Amazon storefront only with high-markup products and raise prices on other merchandise that doesn’t have many competitors. Amazon’s 15% cut includes the payment processing fees that currently devour 4% of my sales, so I’d really “only” need to cover the 11% difference. Either keeping my markup where it needs to be, or living onless, would be difficult with Amazon sapping it, but it’s not impossible.

The lack of integration between my Amazon storefront and my Sunshop store is a harder challenge. Their salesman didn’t know anything about third-party shopping cart integration. He vaguely suggested that I google it. Wow, I never would’ve thought of that!

How can two web stores share the same inventory if they don’t communicate? Trying to keep the two in balance manually would surely create out-of-stock situations and increase inventory errors. To get around that, I’d have to allocate separate inventory numbers to each store: That is, if I have 100 widgets, Sunshop and Amazon each get 50. Firewalling my inventory would require keeping more pieces on hand than I do now – my many items with only 3 or 4 pieces in stock wouldn't appear in both stores. Running two separate stores that happen to share a name and some products – Amazon for high-markup, high volume stuff and Sunshop for everything else – also raises some thorny accounting/budgeting challenges that I won’t bore you with here.

Setting up the Amazon storefront is not trivial, either. Their listings require UPCs, for example; I currently don’t use those at all. Curio City's shipping charges use realtime carrier rate lookups based on product weights and shipping destinations; I’ve honed that system over the past five years to cover my costs without overcharging customers. Amazon uses fixed shipping tables. One must set a base rate plus increments for either the number of items purchased or their value. Making Amazon’s shipping charges line up with Curio City’s would take a lot of finagling…or require Curio City to use fixed rate tables, too. Some customers might prefer that, but it's less fair.

The biggest objection, though, is this: Amazon is the very definition of mass market retail, and Curio City is its antithesis. I don’t think of Amazon as a competitor so much as an unrelated entity. People shop there for consumer electronics, small appliances, software, and…um…well, I’m not sure what else, not being a shopper myself; that’s all I’ve ever bought on Amazon. I’m reasonably sure, though, that they aren’t looking for offbeat gifts or impulse items. The concepts might be inherently incompatible; I might wind up running two different stores with little crossover.

I tried a similar path years ago with an eBay store. That was more expense and hassle than it was worth. Dealing with combative eBay bargain-hunters was not at all pleasant. Amazon probably gets a better-quality customer, so I probably ought not to let my eBay experience cloud my judgment.

The prospect of reaching a huge audience and potentially moving large numbers of at least a few products is tempting enough to make me ponder these hurdles. Just putting Curio City’s name out there might be worth $40 a month even if the storefront flops. As I told their salesman, though, I can’t try it while my own store is gearing up for Christmas. Two months from now I’ll be struggling to keep up with the business I already have.

I’ll revisit this idea going into next summer’s doldrums.

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