Kirill Sokolin, owner of the KEO furniture brand, speaks about the challenges of selling furniture online, required competence and bottlenecks when working with marketplaces. He also covers profit margins and logistics.
— What is your e-commerce experience?
— I got involved with e-commerce in 2006 when we launched our first online furniture store. Trading furniture and e-commerce have been a major part of my career. I have been actively selling furniture via marketplaces for the past year. In the past three months, it has become my own business. We produce furniture on a contractual basis and sell it via Ozon, Wildberries and Yandex.Market.
— What are you biggest challenges in using marketplaces as a trader?
— The biggest challenge was realizing that marketplaces have changed and no longer operate the way they did five years ago. Here is how we worked with marketplaces back then: you take 5,000 items, upload them to a platform without much thought and they get sold without any more effort on your part. The same approach wouldn’t work today. There is no point in placing 1,000 items. If it is 100 items of high quality with excellent content they will sell with clear frequency and it will be a process you can control. Each item is a project of its own, a separate business if you like.
The second challenge is how fast things change. Marketplaces change extremely fast. You have to always keep your eyes on the ball. Today a marketplace may accept your goods for storage free of charge and tomorrow, it may start charging fees. Yesterday, you could rely on the Fulfillment by Operator scheme but today, the scheme may no longer be available.
Speaking about marketplaces in general, the majority of traders starting this kind of business do not realize its complexity. Trading through marketplaces entails many operations and you have to be competent in all of them, from product creation, content and marketing to storage and transport logistics. There are many bottlenecks. For example, if your product arrives late, you may get a fine and hit your budget. A marketplace may lose your goods and kill a month’s worth of profit for you. Unfortunately, it is the reality.
— What aspects should be considered when trading furniture on marketplaces?
— First, packaging. Logistics is beyond the trader’s control, therefore, packaging must be able to endure any mishandling by courier services and storage facilities. You need special cushions, foam plastic, extra layers of cardboard. The job is to deliver items to the end customer safely.
The next important thing is meeting marketplace standards. For example, there may be size restrictions by storage facilities. In our case, we have to make sure that the weight of an item must not exceed 25 kg and the length of the packaging must be up to 110 cm.
— The competition on marketplaces is huge these days. Can a small business trade successfully?
— The probability of a marketplace ruining your business is close to 100%, so, before using these platforms, very thorough calculations are necessary. I would not advise working with just one marketplace. Expand to two or three, ideally in addition to your own sales channel. This way, even if one marketplace goes crazy, your business won’t go up in flames.
Of course, the golden age of marketplaces when there was traffic but no competition is over. But good entrepreneurs with experience in selling certain categories of goods might as well use this window of opportunity.
— How big is the profit margin in furniture trading via marketplaces?
— It differs largely category to category. If we take, for example, budget shelves, the share of logistics in the prime cost is very high; therefore, if profit margin is below 50%, you sell at a loss. For a shelf that costs RUB 1,000 ($17), the cost of storage processing and delivery to the end buyer using one of the largest marketplaces is RUB 217 ($3.69), or 22% of the prime cost. Add a commission of 8%. We will spend 5% of the proceeds to deliver the item from the factory to the marketplace storage facility. So, we come out with 15%, which includes back office maintenance, taxes and profit.
For tables and drawers costing RUB 3,000 to 5,000 ($51‒85), the profit margin of 40–45% is acceptable, as the share of logistics costs is lower. For comparison, offline chain furniture retailers can expect a profit margin of 60–70%.