Retail - A Race to the bottom

[Porky]

So, i have been looking at further investing into stock for a small online retail business and learning how difficult it is. Honestly, I don't know how some of you guys do it.

The margins on some items from wholesalers are ridiculously low imo to start with and I'm noticing when you start selling a line that starts gaining any decent traction not just do others jump on it but there is in some cases what looks like a race to the bottom to take all the profit out of it.

For example; I hit on an item selling at just under £100. On buying £5k of stock i can get my unit price down to £23. There is another retailer selling at similar price, lovely, orders flowing, slow but we are rubbing along nice. Happy. Next thing another player starts supply, similar retail price OK so we are all now sharing less orders between us but still OK. Then in comes a new entrant selling at £25. Market now completely fcked. Orders dried up because buyers now only want to pay £25.

I mean I ask you even if they buy in obscene volumes if they are making £4 a unit they will be lucky. What is the point? Busy fools. So to shift that specific line now I have to drop pricing and take the bulk of the profit out the job or try and sell via other avenues.

Its like a race to the bottom. I sometimes don't get the business acumen of some people. In above example they could make 4 or 5 times the margin but chose to slash the price so low to get market share they make little out of it. Couple that with marketing costs, shipping, storage its probably now a loss leader..

Joys of this business I guess

 

[Mark T Jones]

Low barriers to entry = lots of chancers

Anyone can set up from home for pocket money. And swiftly disappear when inconveniences like tax and insurance rear their heads - meanwhile they corrupt the market.

 

[thetiger2015]

I do question the suppliers sometimes. We have one that makes some beautiful products but, they sell to anyone, they don't verify that an actual business is buying their products and some people are selling their items for £1 over trade price. It's a shame really.

 

[tony84]

Your an established business. You have cash flowing presumably.
When people are starting out their overheads will be lower, they need the cashflow more etc.

Its no different to most small businesses, you start low and increase your prices as you become more established.

 

[Paul Carmen]

Sometimes @tony84 is spot on, other times it's VAT versus non VAT sellers, it may be a clever strategy, but often it's largely people who do not know what they're doing.

Do you all buy from the same source, or are there multiple suppliers, is there any way you can find out what quantity they have available?

If one supplier, they may not care, but I suspect they will. If there's no profit in the product, you and the other sensible sellers will no longer buy them, just leaving the dumbass who will likely go out of business, or not order many if he has no cash. I'd make your supplier aware of this situation, it may be in the suppliers interest to not sell to that person.

If you have the inclination, you could potentially do an Amazon on him; put your retail price down below cost and try put him out of business, or buy all of his stock when he puts the price down, then put yours back up...

 

[Nudge]

So, i have been looking at further investing into stock for a small online retail business and learning how difficult it is. Honestly, I don't know how some of you guys do it.

The margins on some items from wholesalers are ridiculously low imo to start with and I'm noticing when you start selling a line that starts gaining any decent traction not just do others jump on it but there is in some cases what looks like a race to the bottom to take all the profit out of it.

For example; I hit on an item selling at just under £100. On buying £5k of stock i can get my unit price down to £23. There is another retailer selling at similar price, lovely, orders flowing, slow but we are rubbing along nice. Happy. Next thing another player starts supply, similar retail price OK so we are all now sharing less orders between us but still OK. Then in comes a new entrant selling at £25. Market now completely fcked. Orders dried up because buyers now only want to pay £25.

I mean I ask you even if they buy in obscene volumes if they are making £4 a unit they will be lucky. What is the point? Busy fools. So to shift that specific line now I have to drop pricing and take the bulk of the profit out the job or try and sell via other avenues.

Its like a race to the bottom. I sometimes don't get the business acumen of some people. In above example they could make 4 or 5 times the margin but chose to slash the price so low to get market share they make little out of it. Couple that with marketing costs, shipping, storage its probably now a loss leader..

Joys of this business I guess

Seeing a great product take off, only to have the market undercut itself into oblivion, is beyond frustrating. It’s like some sellers are so focused on moving units that they forget to actually make a sustainable profit. The race to the bottom mindset is wild, especially when factoring in marketing, storage, and all the hidden costs.

 

[DontAsk]

If you can, find a niche, or grow your brand, rather than selling commodity products.

 

[Mister B]

As above, find a niche market that has minimal competition but be warned, it won;t be easy.

On another thread though, you were asking for advice as to how to sell on Amazon. If you want to see a real race to the bottom then start selling on there. The competition is brutal.

 

[Porky]

@Mister B
You are so right, I realise Amazon is the daddy of all things retail but I seriously CBA to sell goods on the site on what I consider to be ridiculously small margins. Rather sell less volume at prices that make me money.
BUT, I do accept that if you find a niche you have more of a chance until others join the party or you have so much volume on a high demand product you can make it work.

 

[fisicx]

Many years ago someone told me you won't get rich digging holes, you get rich selling shovels so other people can dig holes.

The ones making money are those providing the tools for others to sell online. Amazon, eBay, Etsy, Shopify, Woocommerce and many others are raking in all the profit.

Look at all those videos, podcasts and tutorials telling you how to sell on Amazon - they makes lots of affiliate and advertising money without having to actually sell on Amazon (and the race to the bottom).

 

[AmazonGeek]

You are so right, I realise Amazon is the daddy of all things retail but I seriously CBA to sell goods on the site on what I consider to be ridiculously small margins. Rather sell less volume at prices that make me money.
BUT, I do accept that if you find a niche you have more of a chance until others join the party or you have so much volume on a high demand product you can make it work.

If all you do is copy other people then it is a race to the bottom. If you create a listing for a product that is the same as everyone else's then your only weapon is price.

The secret is to find products that people are buying but are not happy with. Find out why, improve/differentiate your product, brand/trademark it, and now you have a chance because you are no longer competing on price.

Re margins, one of my best sellers has a landed cost of about £2 and sells for £13.99 - and I sell tens of thousands of them a year. One of my clients is a brand run by two young lads. They have been doing it less than 3 years and only have 2 products on Amazon. One of them sells 10,000 units per month, turns over 7 figures with a 40% margin. They are both in full-time employment too - but not for much longer...

So it can be done, but not if you head off down a blind alley.