E-commerce - the term is thrown about constantly by marketing people, as they decry that any brand without an online presence is shooting themselves in the foot. But many retailers have a love/hate relationship with their online stores, with money flowing out the door for graphic designers, online customer support and more. But in terms of profits, how much do online stores really add to a retailer's bottom line?
Many e-tailers (online retailers) have fallen into unhealthy pricing habits, which are causing their profits to shrink. The practice of overpricing stock, then swiftly discounting it and introducing new styles which follow the same pricing pattern, has become widespread. The pattern has arisen from the situation; online consumers are able to access their favourite stores at any time - unlike perusing a traditional retail store, which would be shopped in person less frequently. The convenience of shopping online, combined with the constant proliferation of new styles and micro trends which are aggressively marketed using shopper tracking, has led to consumers' near-constant demand for new styles at low prices. Research from Adobe has discovered that fashion items have the highest discounts out of any online merchandise, with luxury items and very low-priced items having the largest discounts within the apparel sector.
While this approach might keep consumers attention, it inevitably erodes the perceived value of the brand and its products. It also results in delayed purchasing - when consumers know a style will drop in price in a short time, they will often prefer to risk missing out and wait for the discount, meaning less styles sell at full retail price. Consumers who do purchase at full price and then see discounts may experience cognitive dissonance, develop a negative opinion of the brand or question the quality of their purchase. And for smaller e-tailers, operating a few physical stores with an online store to further their brand reach, constant discounts add work and confusion for retail staff, who must ensure prices in-store match prices online. This rapid discount approach is at the very core of fast fashion giants, like Topshop and Asos, but smaller retailers trying to keep up risk eating into their own profits.
So what can small retailers do to avoid having discounts eating up profits? To jump off the bandwagon is easier said than done, but a smaller product selection may help, as consumers will have less choice so will be less overwhelmed. Otherwise, keep trend pieces selective, and limit your discounts to these pieces which have a limited shelf life. Limited inventory is a good way to prompt consumers into purchase before applying discounts, and having a reputation of only ordering small amounts of stock will allow the 'Get In Quick' mentality to work in your favour.