Finding your niche online.

In e-business, niches can be very profitable.

Let me explain. Walking around New York city you will often find stores that are very specialized. There are stores that sell only knitting supplies, only chess boards and pieces, or only Japanese antiques. The reason why they have stayed in business (even before they started selling online) is because they are in a huge city with millions of people (and more visitors), guarantying a steady number of people who are interested in buying their products. Also, their specializations in specific products provide them with loyal return customers (enthusiasts) who know they’ll find even the most obscure items they need there along with professional knowledge from the staff.

Finding a narrow niche and building a business around it is also a very successful model online. All the benefits provided by specializing in a specific type of product still apply (loyal return customers, expert knowledge, etc.) and you can now sell to virtually everyone in the world who can go online.

The NY Times today has an article about two such websites: NaturallyCurly.com, for everything that has to do with curly hair, and Needled.com, for tattoo enthusiasts. I also like to use two other examples in my class: Cufflinks.com, a site that sells cufflinks, and The Yo Store, a site that sells yo yos.

Such niche sites often take advantage of their core customer base of enthusiasts and provide lots of online community-building features. That way, they promote word-of-mouth advertising which costs them virtually nothing and brings many more enthusiasts to their stores who are willing to buy their products.

And it’s those enthusiasts who will buy the premium products too, like the $100 yoyos or the $3,800 cufflinks.

Clothes outsell computers online.

The NY Times reports that for the first time, clothing has sold more online than computer hardware and software. Specifically, in 2006 apparel in general sold $18.3 billion vs. $17.2 billion of computers, peripherals, and software. Given that the online sales of clothing are only 8% of all clothing sales, there’s still a lot of room for growth.

Why do clothes sell well online? One would expect that without the ability to try clothes on and see them up close, people would be hesitant to buy. Here are a few reasons why:

1. Standardization: Companies like the Gap and Land’s End standardize their sizes, fabrics, and styles so that once a customer knows what they like and what fits, they can feel safe buying from a website.
2. Easy returns: Zappos.com is a great example. Shipping is free, both ways. I recently used them to buy a pair of sneakers. I ordered three pairs I like on the site. I got them shipped for free. I tried them on, kept the pair I wanted and shipped the other two back for free. No questions asked.
3. Customization: Online it’s possible to allow customers to customize their products. I’ve talked about NikeID before and to me they are one of the best examples of mass customization. A customer can customize shoes or other products and have them delivered to their door, all for roughly the same cost of buying Nike’s mass produced shoes. Land’s End has been doing the same with custom clothing for years to great success. Another company called Threadless allows users to design t-shirts and submit their designs on the site. Then, the entire Threadless user base can vote on the best design and the company prints and sells the winning designs. They have been incredibly successful by combining apparel retailing with online communities, an unlikely combination.
4. Better interface: Websites have dramatically imrpoved their interface, allowing customers more flexibility in their browsing activities and providing better tools for viewing the products. Gap.com famously shut down its website for a few weeks last year to redesign it using Ajax technologies. The result is a fluid, seamless shopping experience that is more like the one customers have offline. Land’s End uses a technology called My Virtual Model that allows users to design a virtual doll that looks a lot like them and then dress it up with clothes to see how they look before they buy them.
5. Prior experience: Customers have been buying clothes from catalogs for decades. Publishing the catalogs online instead of on paper is pretty much the same. Reasons #1-#4 above are what have attracted even people who have never bought from catalogs to buy clothing online.