How Small E-Tailers Can Thrive in the Age of Retail Consolidation

Do small and new online retailers have a chance to succeed anymore? Industry analysts say that 2017's parade of acquisitions by major retailers — Whole Foods by Amazon.com, Kate Spade by Coach, HSN by QVC, among others — are making it harder for smaller retailers to survive. How can SMB sellers compete with these players’ same-day delivery, vast selection, rock-bottom prices, and free shipping? The secrets to surviving and thriving now include careful selection of niche products and markets plus a commitment to excellent, personalized customer experiences.

Choose the Right Products, Customers and Markets

Due to their economies of scale, Amazon, Wal-Mart and other enterprise retailers are largely unbeatable on price. Smaller retailers can stand out by offering unique products that these mega-retailers don't have access to, whether that's handcrafted goods, high-end luxury items or something else, and marketing to customers who have the disposable income to buy them.

Markets matter, too — especially if you're selling niche products. In order to build a customer base large enough to grow and sustain an independent online store, it may be necessary to sell across borders, either from the outset or by expanding into new markets as time and resources allow. The worldwide e-commerce retail market is growing four times faster than traditional brick-and-mortar retail, and Forrester Research projects cross-border e-commerce to continue to grow rapidly over the next decade while domestic e-commerce growth in the U.S. and EU will slow.

Many small e-commerce players hesitate to enter international markets because of the hurdles of language and logistics, as well as the perception that cross-border transactions present a disproportionate risk of fraud. There's no doubt that there's a learning curve involved in selling into new markets, and there's the expense involved in localizing the store for different languages and providing local-language customer service. With careful research and wise partner choices — including shippers and fraud control resources — expansion into new markets offers growth opportunities that may not be available domestically.

Compete on Customer Experience

Independent online retailers should understand that competing directly with Amazon, Wal-Mart and other major players on selection or delivery speed is simply not practical. In order to attract and keep customers, smaller retailers must offer what the larger, increasingly consolidated players do not. Even among consumers with modest budgets, the overall trend is to seek out better experiences rather than more materials goods.

Delivering a high-value experience to these shoppers involves many elements, including personalized product recommendations based on purchase and page view history, clear photos and videos that show products in their best light, and an easy-to-navigate layout and checkout process for smartphone users. Already, shoppers browse more on their smartphones than on desktops, but they often end up having to go to their desktops to make purchases because of poorly designed, high-friction mobile navigation and checkouts. Anything that makes it easier for customers to complete purchases on their phones will appeal to them and build loyalty.

Providing easy-to-contact, well-trained customer service staff can also enhance customers’ experiences and earn their loyalty. Many retailers try to save money by using robots and automated customer service phone menus to handle some customer service functions, but this can lead to customer frustration and a negative overall experience. Online retailers that contact customers directly to verify questionable-looking orders rather than automatically rejecting those orders are more likely to retain those customers going forward, which increases their lifetime value. Small retailers that deliver timely, live customer service can build a loyal following by offering a low-stress experience that larger retailers usually do not.

Another aspect of an online retailer's customer experience is the community of customers and fans. E-tailers can invite customers to post their favorite products, show off purchases and share reviews on the store's social media channels and in dedicated customer-community areas of the retailer's website itself. For example, ModCloth, which started in a dorm room and was recently bought by Wal-Mart subsidiary Jet.com, built its customer community in part through its on-site Style Gallery, where customers and fashion bloggers model their purchases. Another brand skilled at building community is Everlane, a retailer of T-shirts and other wardrobe staples. Its nearly 400,000 Instagram followers are as interested in the story of how the garments are made as they are in the styles. These e-commerce retailers and others like them have built loyal followings by welcoming customers into their brand stories.

Small online retailers that focus on creating a great customer experience, offer unique products, and pursue the right customers in growth markets can be successful even as larger e-commerce players continue to consolidate their gains and win with price-focused shoppers. It requires an investment of time and resources to build community, identify customers and markets, and do the legwork to sell successfully and safely across borders, but the payoff is the potential to thrive in an increasingly competitive space.

Rafael Lourenco is the executive vice president at ClearSale, a card-not-present fraud prevention operation that protects e-commerce merchants against chargebacks.