Niches electrify e-commerce

Starting an online shop from scratch is fairly simple. After some brainstorming and researching on the internet, finding ideas that are untapped or haven’t been covered well cannot be a challenge. Setting up an online store – versus setting up a physical one – is again no big deal. Making it work, however, seems to be too much for most.

That may be the reason why 91% of online retail turnover in Hungary is generated by slightly more than 3% of retailers. These 100-odd shops have grasped what customers need better than the 76% that don’t even make HUF 5 million in turnover a year.

Kids’ stuff

What they sell doesn’t really matter. Serving even a special need can make a company prosperous, if it is done well. Ruhafalva.hu, for example, is an online retailer that specializes in children’s clothing. It is the brainchild of mom-friends Rita Szegedi and Dorina Szakolczai, respectively an IT specialist and an accountant by profession, who run the company.

Considering the diminishing child-bearing activity of Hungarians, building a business around kids’ apparel does not sound like a winning idea. Yet Ruhafalva.hu is extremely popular: there is no active mom who has not heard of it. It is one of the handful of sites that has a similarly appealing design and features (for example Facebook and Twitter links, customer service) as the biggest names.

“We wanted to dress our kids with quality, stylish clothes. Evidently, the offering was very poor,” Szegedi told the Budapest Business Journal. They accidentally found a retailer of second-hand baby clothes from England. Satisfied with the products, they searched for a supplier and started their own business.

The site sells both used and new clothes, with a growing emphasis on pieces from outlets. Only two years old in 2009 (with annual turnover of HUF 80 million), the company was among the top ten online retailers of the year, a title it managed to hold on to last year as well. Both times, Ruhafalva.hu placed tenth. And it did so in a category whose number of customers – expectant women or mothers of small children – is limited.

Ruhafalva.hu may serve a special need but that has not prevented it from becoming popular. Why? Because it follows the rules of what makes a good brick-and-mortar shop. Customers enter shops whose windows are appealing, whose interiors are clean and make them feel cozy. They like to have a wide selection of goods to browse through and a pleasant assistant to walk them around.

To enhance the experience, the owners of Ruhafalva.hu invested in some special features, such as a shopping cart that allows moms to save items from collections that are renewed each week, and buy them at a later time. This allows customers to have the goods shipped in bulk rather than piece by piece. The cart keeps goods for 14 days. It also allows customers to cancel orders for 24 hours. This piece of comfort took an IT firm one and a half years to develop, but it was apparently worth it. It seems to satisfy the group of mothers who “shop here for the shopping experience and not the price”, Szegedi noted.

Health e-tailing

When it comes to health, price does not matter either. That was the basic idea behind Provitamin.hu, a one-year-old online shop for health-promoting products. The founder, László Szanyó, had experience in online retail, although in electronic goods. With the recession, the demand for these goods fell and a company that in 2005 had net income of HUF 75 million saw its profits evaporate. By 2009, turnover had fallen 30-50%. This was when Szanyó, following his instincts, started the e-vitamin business. In 2010, he widened the number of products on offer from 300 to 1,500 and began selling health-related appliances as well. In one year, Provitamin.hu reached HUF 100 million turnover.

With such results, the company contributes significantly to the industry’s annual turnover, which could reach HUF 155-160 billion in 2011, according to a forecast by market researcher GKIeNET. The firm puts the share of online retail within the country’s total retail sector at 2.2% in 2011, up from 1.8% a year earlier. During the crisis, most traditional retailers would be happy with that (or with the fact of their businesses are not shrinking), but in the e-retailer world, that represents slowing growth. “The problem is that turnover is generated by the same 1.2 million online shoppers (17% of the total according to GKIeNET) and their number is not increasing,” said Ervin Kiss, director of the Hungarian Alliance for Electronic Retail (SzEK).

True, online retailers can do little about regions with low internet penetration or digital literacy. Or the expansion of shopping malls, which Szanyó sees as a threat to online businesses. Ignorance of credit card safety also holds people back from online shopping. But there are gaps on the supply side as well. The lack of online payment options at two-thirds of online retailers is also a limiting factor. SzEK is working hard to improve that ratio, as well as the ratio of online to offline retail business. It regularly organizes conferences and workshops to train its members about the ins and outs of e-retailing.

These are independent of the retailer. Whether the premise of a business is to make moms happier or people healthier, the elements needed to succeed in the online retail industry are not that different from those in the offline segment.

Online retailing, unlike traditional retail, was not hit by the crisis. The recession has actually made a lot of people go online, Kiss said, and opened up an opportunity for a lot of people to jump in. Now the retailers only have to make it work.

Table 1:

Online retail growth

2009: 57%  

2010: 33%

2011: 25% (forecast)

Online retail turnover:

2008: HUF 63 billion

2009: HUF 99 billion

2010: HUF 133 billion

2011: HUF 155-170 billion (forecast)

Source: GKIeNET