When You’re a Small Business, E-Commerce Is Tougher Than It Looks

Desy Papper

A chair sits in the middle of Holiday Market, a specialty grocer near Detroit, and if customers are lucky, they’ll find Tom Violante Sr. sitting in it. The 91-year-old founder still comes to work most days — and he knows where everything is in its 60,000 square feet. “He asks […]

A chair sits in the middle of Holiday Market, a specialty grocer near Detroit, and if customers are lucky, they’ll find Tom Violante Sr. sitting in it. The 91-year-old founder still comes to work most days — and he knows where everything is in its 60,000 square feet.

“He asks everyone if they found what they wanted,” said his son, Tom Violante Jr., who operates the store with his sister and brother-in-law. “If they haven’t, he’ll tell them which aisle it is in, how many steps it takes to get there, and where it’s located, knee, head or belly high.”

That’s the type of customer service the store, in Royal Oak, Mich., is known for. So, when Tom Violante Jr. began considering offering online grocery shopping, he wanted to provide that same level of care. He didn’t expect the service to be a huge revenue generator, but he saw the future coming, as online brands such as Chewy and Winc wooed his customers away. In 2019, he assembled a team to build an online platform that could handle the store’s 60,000 items.

He was glad he had when the pandemic hit.

“When we first started, we were so busy people couldn’t get a pickup slot for a week, but we wanted to get it to within two days,” he said. “Now we’re at same-day pickup.”

On a ledger of pandemic winners and losers, Holiday Market is in the positive column thanks to online shopping, which helped push the store’s overall revenue up 20 percent in 2020 compared with 2019. In fact, e-commerce is what prevented a catastrophic year for U.S. retailing. Instead of ending in a deep trough of red, online shopping pushed overall retail sales up nearly 3.5 percent, to $5.6 trillion, compared with the previous year, according to the research firm eMarketer. E-commerce alone grew by 33.6 percent in 2020.

But Holiday Market’s success is an outlier for small merchants — the boom mostly helped big business. Ten large retailers accounted for 68 percent of all U.S. e-commerce sales last year — and Amazon alone represented more than half of all online sales. Big e-commerce businesses also absorbed nearly 60 percent of all warehouse space available last year, according to real estate analysts at CoStar Group.

“The big just got bigger,” said Andrew Lipsman, principal analyst with eMarketer.

For small businesses, he said, the benefit was wildly uneven. There were winner sectors, such as grocery, health and fitness, and direct-to-consumer brands, but apparel boutiques and other specialty retailers — especially those without existing e-commerce platforms — struggled.

“The pandemic accelerated the growth of online commerce,” said Loren Padelford, vice president of Shopify, the e-commerce platform that predominantly serves independent retailers. “It woke a lot of people up to the idea that if you have to close your physical door, you need to have a digital door.”

Shopify, a Canadian company, helps customers build online shops quickly — and many businesses turned to it for help when shutdown orders forced them to close. Shopify’s revenue grew by nearly 90 percent last year, and it now serves 1.7 million merchants globally.

Rooshy Roy started her online beauty business, Aavrani, using Shopify; she never even considered opening a physical store. “We realized we could build a company that was all about culture and ingredients, and that selling direct to consumers could make it possible,” she said.

Ms. Roy, a first-generation Indian-American, grew up making hair masks and other beauty products with her mother and grandmother, but she never felt proud of her heritage or her formulations until she met her business partner, Justin Silver, in business school.

Together they’ve raised nearly $3 million from investors and introduced the first iteration of Aavrani in 2018. The response was lukewarm, so they pulled back and rebranded. Last summer they relaunched the New York City-based company with new packaging and a new plan for connecting to customers.

The company primarily uses digital ads to generate sales, but Ms. Roy has also been using Instagram, TikTok and Clubhouse to connect directly with shoppers. She has developed a following on those platforms, she said, because she doesn’t post just about the products. She posts about what matters to her: the struggles of building a business, her upbringing, even confusion about what she is “supposed to look like” as the owner of a beauty brand.

“This is so different from the last version of the brand,” Ms. Roy said. “It’s less transactional, more authentic to who I am. It has really contributed to our growth.”

In 2020, the company recorded $1 million in sales, Ms. Roy said. This year, she anticipates $6 million.

But for brick-and-mortar stores considering e-commerce, success isn’t always as easy as posting a website and watching orders flow in. Even at Holiday Market, there were significant logistical challenges — like where to store all those online orders and keep them cool. Mr. Violante had to gut one of the prep kitchens to make room for new freezers and refrigerators dedicated to storage. In addition, he has to pay employees to shop the order, organize items and bring them to the curb.

“It’s very expensive to have an online shopping program,” Mr. Violante said.

Online shopping accounts for about 8 percent of all sales at the store, and there are 15 employees and one manager dedicated to the service. But Mr. Violante’s vision isn’t to be the best online grocer; he wants to be the place customers come for a great experience and use online ordering as an amenity.

“If everything is delivered, how are you going to sit down and spark up a conversation with people?” he asked. “Losing that truly frightens me. So, we’ll be more like a food hall you see in the big cities, a place where there are common areas and community where people can talk to each other.”

The cost and logistics of enacting an e-commerce strategy convinced Rachel Lutz not to open digital doors for her three Detroit clothing boutiques, the Peacock Room, Frida and Yama. “E-commerce websites are not a magical solution for saving small retail,” she said.

For one, Ms. Lutz couldn’t find a good way to manage inventory across two sales channels. She carries a number of unique and specialty items, and she worried than an online customer could buy an item just as someone picked it up off a store shelf. And stocking separate inventories for online and in-store was too expensive. She also didn’t want to use her retail spaces as shipping and logistics centers when the cost of renting them is so much higher than warehouse space.

In the end, she realized being a community-centered business was the most important thing. “I might be less efficient, but I have a more special and unique business and that’s what draws people to our store,” Ms. Lutz said.

She hasn’t completely turned her back on e-commerce, though. Ms. Lutz used Facebook Live — a tool she was already familiar with — to create a home-shopping show. Several times a week she goes on camera and talks about the products in her store and the people who make them. She numbers the items and people post “sold” in the comments when they want to buy something.

“Customers have started calling it ‘the Show,’” Ms. Lutz said. “I knew we had crossed from e-commerce to infotainment when I heard customers were watching it on their big-screen TVs.”

Amina Daniels, the owner of Live Cycle Delight fitness studio in Detroit, is putting on her own show. She wishes she could just point a camera at one of her yoga or spinning instructors and start running Instagram Live, but she knows she needs high production values if she wants her customers to maintain their memberships. So Ms. Daniels built a mini production studio inside her spin room, investing thousands in microphones, lights and a film crew to produce on-demand video classes.

But no matter how much she invests in her digital platform, it’s hard to go up against Peloton, which is well capitalized and has entire teams producing its digital classes. Last fiscal year, that company saw its sales surge 100 percent even as Live Cycle Delight’s revenue fell 80 percent.

“Our competition changed,” Ms. Daniels said. “We’re not just competing with the gym down the street. Titans like Peloton and SoulCycle, they are true beneficiaries of this pandemic. We are working twice as hard to compete with those titans and with celebrity trainers.”

About 30 customers left Live Cycle Delight for Peloton, Ms. Daniels said, but she found support in other ways. With the movement to support Black-owned businesses, people donated to her, and there was healthy demand for the studio’s branded merchandise, such as Pilates balls, T-shirts and booty bands, the stretchy bands that add resistance to a workout. These goods have proved so popular that Ms. Daniels struggles to keep them in stock on her website.

Between the products, outdoor classes in the summer and memberships, she has been able to keep the three-year-old business open. The shift to e-commerce hasn’t been perfect, she said, but it’s been worth it. She reminds herself why she started the studio: to make fitness more accessible and inclusive.

“Peloton is just one kind of experience,” she said. “We’re still here providing clients with an option to join us on the quest of better.”

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