Building a cheap online store is the fastest route to failure
A Barrabés executive warns: budgeting an online store below the cost of a physical one guarantees failure. Stock, marketing and the 1% conversion rate make it…
English · Original discussion in Spanish · Published
Building a cheap online store is the fast track to failure
A director at Barrabés Internet let it slip during a talk at an industry trade fair: anyone thinking of opening an online store should not budget less than they would for a brick-and-mortar shop, because failure is guaranteed. The exception, he admitted, is selling something so specialised that you are the only one in the world who has it. One in a hundred million. The remark was made to an audience of entrepreneurs who had spent years hearing the opposite: that the internet was the cheap shortcut to starting a business with no rent, no deposit and no licences.
The diagnosis is not an isolated one. Behind the conversation lies the thesis, held by several participants, that e-commerce is a mega bubble of biblical proportions, with thousands of stores billing 100 euros a month at best. And an uncomfortable corollary: it is easier to sell online when you already have a physical store, because customers prefer to buy a fridge at a well-known big-box retailer than on a freshly registered domain.
The real cost of an online store: stock, website and marketing
The first item that gets forgotten is stock. Many projects launch with no inventory: when an order comes in, they buy from the supplier and reship. The result is long delivery times and a store that works as nothing more than a middleman's markup. Those who defend the warehouse model are clear: you need your own goods to respond quickly and keep customers from waiting.
The second item is the platform. Building it yourself with the cheapest tools and no knowledge of IT security is not a saving: it is a deferred bill. And the third is the one that truly decides everything: traffic. The comparison with a physical shop is exact. A ground-floor premises in the city centre costs more in rent because more people walk past; on the internet, that rent is called advertising. Without qualified traffic, the best store in the world sells nothing.
That is where the figure that shatters the illusion appears: conversion rates for a typical online store hover around 1%, according to industry figures. One purchase per hundred visits. Every campaign is judged against that yardstick.
You cannot compete with Amazon on price
The US giant looms over the whole conversation. The most repeated advice is blunt: if Amazon carries the product, forget about selling a single unit. The infrastructure, years of fruta and the premium service — free shipping all year for a minimal annual fee — build a barrier a small store cannot match.
The counter-argument exists and it is not theoretical. Someone selling a product with added value — free training with purchase, for example, in a closed and opaque sector like beauty — argues that neither Amazon nor anyone else can compete with that. Specialisation is the only trench: the giant cannot be an expert in each of its millions of product lines.
The fees that eat up the margin
The calculation by a seller with his own exclusive product is the most illustrative in the article. Analysing Amazon's fees, he found the platform takes nearly 25% of the sale price, calculated on the product including shipping cost and VAT. Add the 21% VAT. After subtracting manufacturing costs, net income came to less than 5%. With advertising, he lost money. His conclusion, half in jest: he makes more growing potatoes and selling them at the local market.
The alternative of eBay-style marketplaces does not solve the problem: you avoid building the infrastructure, but the fees are high and in highly competitive sectors the numbers do not add up.
The argument of those who do believe in the model
It is not all scepticism. Some argue that the savings compared with a physical shop are real and decisive: rent, deposit, permits and fees that are charged before the first euro comes in. For specialised businesses that would not be viable on the high street, the online channel is the only way to exist. And for those who already have a physical store, the website is additional income that gives buyers confidence.
The time perspective also tempers the pessimism. A decade ago the internet was a garden of Eden: with a small budget and some know-how you could do remarkable things. Today institutional capital has moved in and everything costs money. Growing is a matter of time and patience, not a 200-euro campaign.
One unsettling fact remains. The conversation opens with the warning that an online store requires the investment of a physical one, and ends with the realisation that the problem may not be the channel but the market: with no money to spend, neither the shop nor the website sells. The empty online store and the shopfront with the shutter down share the same cash register.
A director at Barrabés Internet let it slip during a talk at an industry trade fair: anyone thinking of opening an online store should not budget less than they would for a brick-and-mortar shop, because failure is guaranteed. The exception, he admitted, is selling something so specialised that you are the only one in the world who has it. One in a hundred million. The remark was made to an audience of entrepreneurs who had spent years hearing the opposite: that the internet was the cheap shortcut to starting a business with no rent, no deposit and no licences.
The diagnosis is not an isolated one. Behind the conversation lies the thesis, held by several participants, that e-commerce is a mega bubble of biblical proportions, with thousands of stores billing 100 euros a month at best. And an uncomfortable corollary: it is easier to sell online when you already have a physical store, because customers prefer to buy a fridge at a well-known big-box retailer than on a freshly registered domain.
The real cost of an online store: stock, website and marketing
The first item that gets forgotten is stock. Many projects launch with no inventory: when an order comes in, they buy from the supplier and reship. The result is long delivery times and a store that works as nothing more than a middleman's markup. Those who defend the warehouse model are clear: you need your own goods to respond quickly and keep customers from waiting.
The second item is the platform. Building it yourself with the cheapest tools and no knowledge of IT security is not a saving: it is a deferred bill. And the third is the one that truly decides everything: traffic. The comparison with a physical shop is exact. A ground-floor premises in the city centre costs more in rent because more people walk past; on the internet, that rent is called advertising. Without qualified traffic, the best store in the world sells nothing.
That is where the figure that shatters the illusion appears: conversion rates for a typical online store hover around 1%, according to industry figures. One purchase per hundred visits. Every campaign is judged against that yardstick.
You cannot compete with Amazon on price
The US giant looms over the whole conversation. The most repeated advice is blunt: if Amazon carries the product, forget about selling a single unit. The infrastructure, years of fruta and the premium service — free shipping all year for a minimal annual fee — build a barrier a small store cannot match.
The counter-argument exists and it is not theoretical. Someone selling a product with added value — free training with purchase, for example, in a closed and opaque sector like beauty — argues that neither Amazon nor anyone else can compete with that. Specialisation is the only trench: the giant cannot be an expert in each of its millions of product lines.
The fees that eat up the margin
The calculation by a seller with his own exclusive product is the most illustrative in the article. Analysing Amazon's fees, he found the platform takes nearly 25% of the sale price, calculated on the product including shipping cost and VAT. Add the 21% VAT. After subtracting manufacturing costs, net income came to less than 5%. With advertising, he lost money. His conclusion, half in jest: he makes more growing potatoes and selling them at the local market.
The alternative of eBay-style marketplaces does not solve the problem: you avoid building the infrastructure, but the fees are high and in highly competitive sectors the numbers do not add up.
The argument of those who do believe in the model
It is not all scepticism. Some argue that the savings compared with a physical shop are real and decisive: rent, deposit, permits and fees that are charged before the first euro comes in. For specialised businesses that would not be viable on the high street, the online channel is the only way to exist. And for those who already have a physical store, the website is additional income that gives buyers confidence.
The time perspective also tempers the pessimism. A decade ago the internet was a garden of Eden: with a small budget and some know-how you could do remarkable things. Today institutional capital has moved in and everything costs money. Growing is a matter of time and patience, not a 200-euro campaign.
One unsettling fact remains. The conversation opens with the warning that an online store requires the investment of a physical one, and ends with the realisation that the problem may not be the channel but the market: with no money to spend, neither the shop nor the website sells. The empty online store and the shopfront with the shutter down share the same cash register.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (53 replies).
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