As tens of thousands of traditional retailers scramble to offer online sales and delivery, a very real conundrum arises: which products should I offer for online sale?
The simple (and, in my view, short-sighted) answer is “all of them”. If you offer 1,000 skus in your physical store, then it just makes sense to offer the same items online, right?
Not necessarily. Setting up an online store presents an entirely new set of considerations and selecting the right product mix for your online store is fraught with complexities. Offering the wrong items (or the right items at the wrong price) can have detrimental effects on your brand that can extend to all of your sales channels, eroding the goodwill you have spent many years building up.
So how should you decide what products to offer online?
Imagine a rake that sells for $20. In a hardware store, you’ll find dozens of them displayed in racking for easy purchase. Now imagine purchasing and stocking an appropriately sized box in which to pack that rake. Then figure out the shipping costs (taking care to calculate the correct dimensional weight).
Everything else being equal, small, valuable items do better online than large, inexpensive items. This is of course due to two main costs: shipping and fixed order handling costs. If it costs you $2 to pick and pack each order, then selling a $5 item is unlikely to be profitable. And if it costs $15 to ship the same item, you will either lose a lot of money on every order (if you are subsidizing the shipping cost), or your customers will buy somewhere else (if you are trying to pass through the shipping charge).
Many retailers are not used to considering what happens after a customer leaves their store, item in hand. When selling online, this burden is shifted to the retailer and the costs must be understood.
Storage and Handling
Some small and valuable items may still be inappropriate for your online store. Some items are more prone to shipping damage and may take so long to safely pack that they become uneconomical. Some items have a high return rate. And some have low return rates when sold in your physical store, but when sold online the rate could skyrocket. Some products may violate various courier’s shipping policies.
Custom, One-of-kind, Handcrafted Items
While certainly not a deal breaker, selling custom or one-of-a-kind items online presents its own challenges. Depending on the variability between individual specimens (eg. pricing, colours, etc), you may need to list each one separately. At the very least you will likely need descriptive verbiage that indicates “items may vary from photo”. This type of variability can also complicate availability settings. The flipside of selling these types of items online is that competition will be less intense and sometimes non-existent. So putting in the work to merchandise these items online can reap significant benefits in the longer term.
The reality is that as soon as you publish an online store selling the same items that you sell in store, there will be a degree of sales cannibalism that takes place (customers that would have normally made an in-store purchase, may decide to purchase online instead). You may be thinking that this doesn’t matter - as long as I keep the customer and maintain the sale. The problem with this thinking is that the two sales are not typically equal. Selling online typically has a higher marginal cost of sales. And there are different dynamics at play with regards to impulse purchases, which tend to be very high margin.
So how does this impact your choice of which items to offer online? Perhaps you sell an item that is bulky and awkward to transport. If the customer sees that it is now available for online purchase, they may be dissuaded from coming into the store. If this is a staple item (for example, bags of potting soil for a gardening centre), then the store may lose the chance to entice the customer to buy other items. And if your store relies on salespeople to convert customers to higher-ticket items, this opportunity is also lost.
Online Competition Is Different
You are likely used to dealing with online competitors already - virtually every retailer has been fighting this war. But one of your main weapons in that war is that you have a physical location where your customers can visit and feel the items directly. When you offer items online, you are playing by a different set of rules. Price becomes far more important. It is important to clearly understand what your digital strategy is: are you attempting to move to a primarily online sales channel or is your ecommerce site a way to drive more foot traffic into your store.
Today, the COVID-19 pandemic has of course complicated the situation and retailers are having to be very flexible with their strategies.
Kitting is a great way to avoid directly competing on price. It makes it difficult for customers to price compare and it has the ancillary benefit of increasing average order size. There is more initial work to set up kitting in your store, but it is often well worth it.
Selling a single item may be unprofitable due to the shipping and order handling costs. But six of that same item? It now starts to make sense. So encourage people to buy more by offering price breaks. Each item should be considered separately, as the best breaks may very well be different. The first consideration will most likely be profitability, but also look at other things like packaging. Maybe packing 10 of an item is easy to do in one of your stock boxes, but 12 just becomes a headache. It is important to think beyond the numbers.
For some of your highest volume items, look for opportunities to private label. Rebranding your items makes them unique in the eyes of the customer and eliminates easy price comparisons. This is of course not an option in every situation, but it certainly worth examining.
“In-store Only” Products or Special In-store Pricing
Another strategy I have employed in the past involved differentiated pricing based on sales venue - basically, setting a different price for in-store vs. online purchases. Take an outdoor table that sells for $100 in your store. You could offer it for sale online for $120, with an posted in-store price of $100 to let your customers know that they have the option to save $20 if they pick it up themselves. The ability to specially set prices per venue can allow you far more flexibility and can eliminate much of the conflict that arises between an in-store and digital sales strategy.
I would be happy to discuss any questions you have about your online product selection in more detail. Please contact me.