It’s well known that small retail businesses often struggle against their big corporate competitors. And with the rise of Internet-based retail, the economies of scale are tipping even more in favor of the mega firms that have the resources to invest and can offer a wide range of merchandise at cut-rate prices. But a new study by economists at the University of Chicago offers small business owners a ray of hope. It suggests that by providing niche goods or services, the smallest of businesses can not only survive, but thrive.
“E-Commerce and the Market Structure of Retail Industries” (Economic Journal, June 2010) examines how the marketplace has changed due to the internet. The researchers reviewed three aspects of commerce: prices, industry structure, and jobs.
As expected, all three arenas have changed in ways that support large firms. Customers who are savvy about price comparisons have caused retailers to drop prices in order to compete. Large firms have increased their numbers, while numerous small ones have seen their doors shut. Accordingly, employment rates have dropped within industries that gravitated toward online sales.
Fortunately, these changes do not spell doom for all small businesses. The study also found that informed consumers turn to retailers who best cater to their needs. By offering specialized or high quality goods and services and by focusing on good old fashioned customer service, small businesses can gain and hold on to a loyal customer-base.
E-commerce may squeeze out some small businesses, but it also offers unprecedented opportunity to create a niche and reach potential customers.