How is inflation hitting e-commerce?
This is the eighth in a series of columns chronicling the entrepreneurial journey of an aspiring e-commerce business owner and the ins and outs of starting an Amazon business.
By Jane Han
SEATTLE ― From groceries to gasoline, everything is more expensive now than it used to be and selling online is no exception.
Prices of materials, manufacturing, storage and shipping have gone up across the board, so how should online businesses combat inflation and, for those contemplating starting e-commerce, is now a good time to start?
As someone who has been selling online for almost three years, one thing I can say for sure is that running a business has never been this expensive.
Not only is it more expensive to manufacture products, rising fuel and inflation is pushing e-commerce platforms to hike up already-high fees.
Amazon recently slapped on an additional 5 percent fuel and inflation surcharge on top of its current fulfillment fee, forcing sellers to either push up prices or live with thinner margins.
Every business is different, but I ended up increasing prices by 10 to 15 percent on most of my products, excluding a few that are in a very competitive category.
I knew that upping my price will only leave my products neglected by customers, which in turn will hurt my search ranking. So even if it means I make as little as $1 in profit per unit, I've made the judgment that I'll make less now to secure my position for the post-inflation future.
Aside from modestly pricing up my products, some other measures I'm taking to offset inflation include refraining from launching new products to minimize risks and cutting back on nonessential spending such as purchasing fancy packaging material.
I talked to a few other e-commerce business owners to hear how they're fighting inflation.
“I'm choosing profit over volume,'' says Sean Lee, who sells toys on Amazon. “I've increased my prices by at least 10 percent to make sure my profit margin is protected. I don't mind selling less, but I do mind not making money while doing service only for Amazon and the customer.''
He admits slow sales will more than likely hurt his search ranking, but believes that is something he can recover down the road.
“I know a lot of people are getting nervous because of inflation and all the other situations going on around the world,'' said Lee, ``but if you're planning to be in business for a long, long time, you really shouldn't panic but thoughtfully strategize a temporary business model to ride it out.''
For Ruby Kim, who sells Korean innerwear on Amazon and eBay, her temporary business model is in fact turning out to give her business a bigger boost.
“My products have been priced too low all along,'' said Kim. “I started low to attract customers and never got around to making the increase because I was afraid of turning off customers.''
Two weeks ago, Kim hiked up prices by 30 percent, which meant a simple $20 undershirt went up to $26.
But to her surprise, sales have gone up.
“If my product was inferior, customers would think it is overpriced,'' said Kim, “but I'm offering superior products made with functional, high-performance textile. So when customers expect a high-end innerwear based on the retail price, they get exactly that. Inflation gave me an opportunity to reexamine my pricing so, ironically, I'm thankful for that.''
Meanwhile, there are merchants like David Yang, who sell oversized items that are being forced to delist products to save money.
“Prices of bubble wrap and boxes have skyrocketed through the roof,'' he said. “I lose an average of $5 for every item I sell because of the high cost of materials and shipping fees. I won't be selling for a while. It was a very simple decision for me.''
Every business has a different inflation strategy depending on where and how they source their products and what they sell, but in today's turbulent times, it is critical for e-commerce business owners to constantly evaluate their pricing, while ensuring the highest quality.
Price increases are likely unavoidable and sellers shouldn't lose money while doing business, but they should also lower their expectations and be willing to temporarily accept lower profits.
Since even seasoned e-commerce entrepreneurs find inflationary pressure challenging, those who are contemplating starting an online business may want to hold off for the time being.
Everything is more expensive now so it does not present an ideal circumstance to start anything new, especially when it is laden with financial risks.
Jane Han (jhan@koreatimes.co.kr) is an e-commerce entrepreneur who currently owns and sells several brands of products on various online platforms. Based in Seattle, she also writes as a freelance correspondent for The Korea Times.