Progress is important for any small retailer, as merchants generally want to see their sales figures and customer bases growing and expanding. However, reaching more people and selling more products is not the only way to improve the bottom line – merchants can make critical operational changes that will help them improve their profitability, regardless of whether they sell more units or reach more customers.

Internet Retailer recently reported that many Second 500 online retailers are taking a more profit-oriented approach. Trying to compete with the bigger sellers, particularly on highly competitive marketplaces such as Amazon, tends to result in these smaller merchants entering into price wars just to win a sale. This negatively impacts profitability over the long haul, especially when marketplace buyers do not always transition into loyal, repeat shoppers.

Instead of trying to compete on the price front, retailers can invest their resources into marketing, the shopping experience and behind-the-scenes tools and solutions to improve the efficiency and quality of their operations. The goal is not to sell more products and reach more customers, but to improve profitability on each item sold and create an audience of engaged shoppers.

Case study: Phoenix Leather Goods

Phoenix Leather Goods is one of the many Second 500 retailers looking to focus more on profitability than bigger numbers. The merchant operates a number of online storefronts, such as BeltOutlet.com and GoInStyle.com, and also has numerous marketplace stores on sites such as Amazon. Last year, Amazon drove nearly two-thirds of the $6.3 million online sales generated by Phoenix Leather Goods.

This year, the company saw roughly the same volume of sales, but as Internet Retailer noted, company executives are just fine with that because the company was able to devise a new strategy that bolstered profitability regardless. In fact, digital marketing manager Brad Rusin credited much of the growth in profitability to the company standing its ground when it comes to pricing and not bending to undercut competitors.

“In certain cases we consciously took ourselves out of competition for the Buy Box,” Rusin told Internet Retailer. “When we looked at our costs, we said, ‘We can’t go as low as these other competitors. We’re going to walk away from this and focus on some more profitable sales.'”

Retail on a merchant’s own terms

Popular online marketplaces such as Amazon and eBay can be pivotal tools for reaching wide audiences, particularly for this Second 500 audience. These merchants tend to have a smaller reach and lower customer bases, either because they operate in a niche or because they are still young and growing brands. However, relying on marketplaces like a crutch can actually hinder growth for a number of reasons, including:

• Lower profits: Marketplaces not only take a cut of the sale, but competition often results in merchants lowering prices to compete
• Lack of control: Retailers must play by the marketplace owner’s rules, policy or practice changes, which could negatively affect operations.
• Inability to build audiences: Marketplace sellers cannot get the detailed information about buyers they need to improve their offerings and operations.

This is why growing retailers need to focus on selling via their own eCommerce sites, instead of over relying on third-party marketplaces. Investing more resources both into the eCommerce site itself and the tools and technology powering retail operations can help merchants improve the bottom line by taking control of their brand, collecting more information about customers and improving product selection and service offerings.