5 Lesser-Known Challenges of Running an Ecommerce Store Problems in shipping, inventory management and taxes can sneak up on you.
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To a lot of aspiring entrepreneurs, ecommerce offers a quick and efficient way to start running their own businesses. For one, you do not need your own product. There are thousands of successful business owners who have made a living out of drop shipping products from third-party manufacturers or at least buying them from a distributor to resell them online.
Setting up a shop is simple too with services like Shopify, Magento and WooCommerce. As a matter of fact, you do not even need a website in the first place thanks to marketplaces like Amazon and Etsy.
But things aren't this rosy in the real world. Forget the challenges a startup business typically faces with respect to marketing the product, fighting competition or finding suppliers. There are a lot of other issues that retailers fail to acknowledge when they launch their business. For this article, I asked hundreds of ecommerce owners what these lesser-known challenges were. Here are the top five.
1. Drop shipping
At first glance, drop shipping is the quickest way to launch your own online store. For the uninitiated, drop shipping is the process of directly shipping the product from the manufacturer or distributor to the end-customer without having to stock them yourself. This strategy is extremely cost-effective, since you only have to handle the website operations and marketing for the most part. But it's tough to build a sustainable business out of this strategy.
Product quality: Since you do not test and ship the products yourself, there is no way to know if the products being delivered to the customer are of the same quality as the one you paid for. According to Shawn Chhabra of LaptopUniverse.com, there is always a possibility for counterfeit products to get mixed in the inventory you sell.
This can sometimes be a safety hazard, since the products you ship may contain parts like batteries that may be a part of a safety recall. It is hard work finding a drop shipper who is equally committed to quality as you are.
Unforeseen expenses: Elizabeth Shores from Gild.biz does a lot of drop shipping, and she tells me about the multiple unforeseen expenses that come with it. For instance, some drop shippers may decide not to ship a product to the customer after it has been paid for. There are others who may send them in their own scheduled shipment batches that may result in extremely long delivery times.
The resulting charge backs from customers can debilitate your business while ruining your brand. Did I also mention the secret membership fees that some drop shippers charge you after you have signed them up as a supplier?
Even if you are only reselling products from other manufacturers, you are still responsible for the safe delivery of your products. There are a few challenges here.
Damage in transit: Think of this typical scenario where you have paid for and shipped the products from the supplier's location to your warehouse. Any damage in transit from here is your responsibility.
Sean Dineen is the founder and president of Iron Age Office Furniture, a company that makes and sells their own furniture. He tells me that one of their biggest challenges is in packaging the product in such a way that no damage happens during transit. He says that no matter how good the customer experience is during the buying process, the experience still gets flipped when this customer gets a damaged product after a lengthy waiting time. Packaging may add to your shipping costs, but is an expenditure that is well worth the investment.
Transit losses: Entrepreneurs getting into the ecommerce business for the first time often underestimate the number of times your package could get lost in transit. This is especially true if you deal with an international audience. The postal network is not reliable in many countries, and to add to this, excise duties are often imposed on international shipments. These can make your product a lot more expensive than they really are.
Domestic shipping too can create problems sometimes. Candis Jones, the owner of TheJonesMarket.com had to deal with a high percentage of "lost" packages. After much sleuthing, she was able to attribute the loss to their brightly colored packages that drew unwanted attention. The company has now gone back to plain brown shipping bags to reduce package losses. Even seemingly innocuous strategies to attract customers can hit your bottom line hard if not identified at the right time.
3. Inventory management
Demand planning is an area of supply-chain management that even the largest consumer goods companies in the world struggle with. For a small-time retailer, improper inventory management can make or break your business.
Lisa Chu is the owner of kids clothing company Black N Bianco who handles more than 200 different stock-keeping units (SKUs) for her business. She writes about her experience during the holiday season, where matching the demand-supply gap for each of these SKUs was extremely challenging leaving her with lots of unfulfilled orders and upset customers. While this may seem like a problem of plenty that one should be happy to deal with, this is a challenge that is likely to crop up regardless of whether you handle 10 or 10,000 transactions a day.
4. Consumer fraud
A lot of ecommerce stores operate on wafer-thin margins, and this is further reduced due to consumer fraud -- which is surprisingly quite commonplace. This is how it works: A customer makes a purchase on your website and waits until you ship the product to them. Once the delivery is complete, they report the transaction as fraudulent and in most cases, the banks side with the customer. According to Tamara Budz from TwinedArt.com, the costs in pursuing these cases of consumer fraud are huge, and as a result, a lot of small businesses choose to write this down as a loss instead.
Paying taxes on your business is common knowledge right? Not so, says Julian Flores, the founder of GetOutfitted.com, an online seller of premium outdoor gear and apparel. He says that there is a false perception among new entrepreneurs that running an ecommerce business allows you to avoid collecting and remitting local, county and state sales tax. This is not always the case, and depending on what you sell, overlooking this aspect can get you into a lot of trouble.
Are you an ecommerce business owner? Please share other lesser known challenges you faced in running your business in the comments below.