Small Firms Find Niche on Net
The big retailers trying to become “dot-coms” might learn from Vitaly Yazvim.
After selling rugs at a local swap meet for six years, the owner of Irvine-based Rugs4Less recently set up shop on Amazon.com’s online mall. And now, 60% of his business comes from customers who find him in cyberspace.
“I just wake up every morning and I get paid. This is amazing,” said Yazvim, who operates from a warehouse. “Rugs are big, expensive items and people want to be sure of what they buy. But on the Internet, people buy a product they can’t touch with no problems at all.”
Small retailers with little presence in the real world are expanding onto online malls, where they are carving out profitable specialty businesses under the noses of big retailers. And they are doing it without spending millions on Web advertising.
Amazon, Yahoo and others are making space for small retailers to enhance the shopping experience at their online malls. And small retailers potentially benefit from the deals. As in a real-world shopping mall, online shoppers are drawn by the big names of Yahoo and Amazon but may purchase items from small retailers that they find along the way.
Greg Schiffman set up shop in online malls after his four bricks-and-mortar collectible toy stores closed. Last year, his online business did less than $600,000 in sales, but this year ToyFan.com, which has 12 part-time employees, will do more than $4 million, Schiffman said.
The key is to find a niche ignored by big virtual stores, he said. ToyFan, for instance, specializes in collectibles such as Spawn and X-Men action figures. “If you’re small and competing against EToys, close up shop,” Schiffman said.
The deals not only offer small retailers a crack at many potential customers but also help with setting up a site. For a fee, the mall operators set up and operate online stores. They collect fees on transactions.
“I pay $9.95 a month to Amazon and 5% on a sale,” Yazvim said. “If I don’t sell, nobody charges me, and basically I don’t have any expenses, except my time.”
But Amazon, which calls its mall stores ZShops, and the like put their brand names at risk if the small retailers don’t perform at the same level of service.
“If you wind up hosting someone that does something illegal or immoral, it paints you as well,” said Allen Weiner, an analyst with Net-Ratings Inc.
On both Yahoo and Amazon, customers can rate individual merchants, a way of either warning or encouraging future shoppers. Amazon in most cases also will reimburse the cost of a transaction up to $250.
“Retailers’ very success on ZShops depends on the ratings, their digital reputation,” said Jaleh Bisharat, vice president of marketing for Amazon. “The Amazon.com brand is all about finding anything you want online, and ZShops does a tremendous amount to deliver on that.”
Amazon’s brand may be more susceptible to tarnishing by the poor performance of a small retailer than Yahoo’s, said Mike May, an analyst with Jupiter Communications, because Amazon is built on shopping, while Yahoo centers on finding things on the Internet.
But that doesn’t mean the venture doesn’t pose risks to Yahoo, May said. Yahoo draws a lot of revenue from large merchants who pay dearly for high-profile positions on the site. If small retailers, who pay relatively little, siphon off a significant chunk of traffic, the value of those sponsorships drops, May said.
“One or two years ago, many commerce sites were basing their entire strategy on which portal to side with,” May said. “Now, those retailers are big enough to do their own marketing, and increasingly the deals with those portals are becoming less attractive.”
Unlike stores in real-world malls, small online retailers have not been as successful in building brand loyalty. Shoppers may find them through Amazon and buy a single item from them but never go back to that merchant, May said.
Also, Amazon’s ZShops and Yahoo’s shopping mall tend to be more product-driven, May said. Instead of shoppers going to the online mall and clicking on a store that they recognize, as they would enter a store in a real-world mall, customers look for the product that would lead them to the store, May said.
As in the real world, however, location is everything.
Tony Caruso, owner of Music Box & Clock Shoppe in Palm Springs, is disappointed with sales at his online store on IMall Inc., a second-tier virtual mall.
“The biggest problem is people finding where you are located,” he said. “You’re there and the exposure to millions of people around the world is wonderful, but the customers have to locate you, and that’s what it’s all about.”
