5 reasons why retail startups are rad
Prior to starting Shoes of Prey, Mike Knapp and I were working at Google and were brainstorming industries that would be good for an online startup. We settled for online retail and here are the 5 reasons why:
1. There is so much room for innovation
Retail is an industry that’s 1000’s of years old and while there have been innovations, there hasn’t been an enormous industry changing event in that time. Online retail has the potential to change the industry more than anything else in it’s history.
Whether it’s offering products in a way that has never been possible before, like Pandora do with music, the brilliant use of customer and sales data at Amazon to suggest highly relevant products to customers, a new retail model like offering only 1 product (Woot) or deal (Groupon) per day, or tearing up old business models as Alice is attempting to do with grocery and Apple did with music retailing, online retail has enormous potential for innovation and there are so many ideas out there waiting to be executed.
2. Online retail is a growing industry
Figures can vary depending on exactly what is classified as ‘retail’, however online retail still makes up only a small percentage of total retail sales, in the order of 5%-6% in the US and less in countries like Australia. This is only going to grow.
3. An online retail business is easy to monetise
In addition to the difficulty of getting people to use your product, many online startups face the problem of how to make money from their business. Take Twitter and FourSquare. They’ve each built a fantastic user base, but they now face the challenge of working out how to make money from their product.
Like countless retail businesses for 1000’s of years, an online retail business sells a physical product so there is no need to develop a whole new business model for the business to be profitable.
4. There’s not a great deal of competition
The lure of getting rich quick by hitting on a winner in Apple’s Appstore or building the next Google or Facebook draws most top developers into those spaces resulting in a huge amount of competition. Most good web developers, when brainstorming what sort of business they want to start will avoid anything that involves a physical product like the plague.
If you and your team have the skill set to build a great website, and manage physical operations like sourcing physical goods and a physical supply chain, then you’ll face a lot less competition in the online retail space.
Of course you’ll potentially face some competition from traditional retailers moving into the online space, but particularly in Australia, that’s happening at a very slow pace. To help minimise that risk, but an innovative spin on your product and odds are you’ll stay well ahead of most traditional retailers.
5. The industry is small enough that you can have an impact early on
Online retail, particularly in Australia, is only just starting to develop. There are a number of industry groups and websites that have only recently started like Internet Retailing, Inside Retailing and Power Retail. Because these sites are relatively new it’s not too difficult to get coverage from them. It’s a similar story with conferences and industry awards. If you do something new and interesting in the online retail space you’ll soon be presenting at conferences and find your startup a finalist amongst some fantastic industry players.
If you’re thinking of doing an online startup I’d recommend considering online retail or applying a similar thought process to the industry you’re thinking of launching in.