Friday 20 September 2019

Why most SMEs don't see opportunities to make a profit in online trading

Models Li-Ann Small, Laragh McCann , Eve Connolly and Faye Dinsmore pictured at the launch of Brown Thomas' Autumn Winter 2013 collections.
Models Li-Ann Small, Laragh McCann , Eve Connolly and Faye Dinsmore pictured at the launch of Brown Thomas' Autumn Winter 2013 collections.
Adrian Weckler

Adrian Weckler

On Tuesday, Brown Thomas dipped a toe into the world of online selling. By next summer, it says, half of its products will be available to buy online.

That it has taken 15 years for one of Ireland's most iconic retailers to start selling things on the internet might seem odd.

But while conventional wisdom says that firms should trade online, most Irish companies – including Brown Thomas up to now – don't believe it.

A recent survey (by iReach on behalf of Authipay) on the topic, among ordinary Irish companies, found that less than two in five had any aspiration to trading online. The reason offered was damning: 79pc said it wasn't "relevant" or that they could see "no opportunity" for an online element to their business.

What does this say about Irish companies?

One reason that Irish SMEs might still be reticent about trading online is the very small number of peer SMEs which have demonstrably made a success of an online venture. Micksgarage.com is one. Avoca.ie is probably another. And you'll find a few small ones nestled in among the firms shortlisted for a 2013 eCommerce prize at WebAwards.ie.

What Irish firms do hear a lot of are specific examples of industries ransacked by online engagement. Take music. To earn the Irish minimum wage from music-streaming sites such as Spotify, a singer needs to achieve about 200,000 plays of his songs per month. (A band of four people plus a manager would probably need over a million plays a month for each to get minimum wage.) This is based on an industry estimate of 0.007 cents per play.

A more dramatic example comes from the adult pornography industry. By most estimates, this was worth something in the region of €75bn per annum in 2006. Yet while conventional wisdom asserts that commercial pornography paved the way for online eCommerce, in fact it is the reverse that has happened. While the nature of the industry makes it difficult to audit, estimates by CNBC value the entire adult entertainment industry at around €12bn, with only a proportion of that – perhaps just €2bn – coming from online revenue. To put this figure into context, electronics accounted for around €115bn of online sales last year (according to MarketLine).

Separately, some online opportunities for selling things are shrinking. SMS-text commerce, once regarded as a growth area, is now in decline. It is not helped by the ongoing collapse of SMS text messaging, down 22pc year-on year in Ireland, according to the telecoms regulator.

And mobile apps are far from being a magic bullet. According to figures from Apple, Google and apps developers, the average iPhone app makes about 8 cents per download while the average Android app makes a paltry 2 cents. Given that the vast majority of apps are downloaded less than 5,000 times, there is no obvious return on investment visible to the average Irish business owner.

Despite all of these challenges, there are incentives. The Government is currently offering €2,500 to 2,000 Irish small traders (via local enterprise boards) which can convincingly show that they're making an effort to become more eCommerce-friendly. Meanwhile, Irish broadband penetration is still increasing.

And the most recent Central Statistics Office figures show that the average household spends around 10pc of its €38,000 annual budget online. Surprisingly, the biggest single category is groceries (20pc). This is followed by electricity and fuel (11pc), financial services (10pc) and clothes (7pc), which Brown Thomas may be looking at. Other research indicates that almost two-thirds of Irish adults shop online at some point, with the same number saying that they plan to increase online expenditure.

So even if this generation of 40-something and 50-something shopkeepers still regard online trading as 'tech', the next generation may not be as reticent.

No one doubts the challenges facing Irish business trading online.

For example, the historical absence of postcodes – the unique identifying codes of letters and numbers latched on to addresses – has made home delivery slow and prohibitively expensive. It has been regularly cited by companies such as Xtravision as a reason for not fully entering the e-tailing market. Thankfully, Ireland is about to introduce postcodes and end our status as the last country in Europe without this sensible address element.

Other problems abound. Getting an online merchant account to enable credit card payments to a small firm's website remains an excruciating, lengthy and expensive ordeal with Irish banks. (For alternatives to merchant accounts for small traders, see my September column on Independent.ie.)

Then there are our own cultural preferences. According to recent research from the economic consultant group Indecon, a whopping 54pc of us resort to researching products online but then choose to buy them offline.

Irish Independent

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