The online retail industry is booming, and shoes are one of the most popular items sold online. In fact, according to IBISWorld, online shoe sales in the United States in 2022 will cross $23 billion1.
So, the question – Are online shoe stores profitable? – might seem to many as moot because clearly online retail stores are successful in selling shoes. But that doesn’t mean every online shoe store is going to be profitable because the profitability of an online retailer – as that of any other business – depends on many factors. And many decisions that the owner and management make along the way.
If you’re considering starting your own online shoe store you will be faced with hundreds of decisions – small and large. Each will impact your business either positively or negatively. Many decisions will be reversible, and you will be able to adjust them during course corrections.
But some decisions will be big ones and making the wrong big decision could lead to financial ruin, while making the right big decision could set your business up for success.
In this article, we’ll take a look at 7 key decisions you’ll need to make that will have the greatest impact on your online shoe store’s profitability.
Let’s dig in.
When Are Online Shoe Stores Profitable?
Online shoe stores can require large upfront investments depending on the business model deployed. They also need tend to carry large inventory costs since shoes are physical products that need to be stored and then shipped to customers. And these costs need to be borne by a new online shoe store even before the first shoe is sold.
(Exception: When dropshipping is used – we’ll cover this point later in the article).
And so for an online shoe store to be profitable, it must sell enough shoes to cover COGS, operating expenses (fixed and variable) as well as depreciation expenses.
COGS or Cost of Goods Sold refers to what you pay to acquire the shoes from a shoe manufacturer or a wholesaler. If you decide to manufacture the shoes yourself, you will cover these costs in Operating Expenses. This is more an accounting question and will affect neither your operating profitability nor your net profitability and so it has no impact on our discussion in this article.
Operating costs include employee wages, warehousing costs, utilities, insurance, shipping & handling costs, marketing costs, inventory management software, accounting costs, insurance, website/online store management, etc.
Depreciated costs that a typical online shoe store will incur include costs related to licenses/permits, legal fees, setup costs, computers, etc. These are the portion of long-term investments accounted for in the current fiscal year.
The important point is that all these costs need to be incurred before an online shoe store can even start selling, let alone make a profit.
And so online shoe stores start becoming profitable when they sell enough shoes to just cross the “break-even point” where revenues exceed all expenses – COGS, Operating Expenses and Depreciation.
Of course, there are different ways to measure profitability and a good first milestone is when the online shoe store has a positive EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization. Then at least we can say the business is profitable, if we ignore borrowing costs (Interest), Taxes, and long-term investments (Depreciation and Amortization). Of course, the ultimate goal should be to reach Net Profitability – that is profitability after considering all expenses.
7 Critical Decisions that will impact your Online Shoe Store’s Profitability
As we said in the introduction to this article, there are numerous decisions that you, as an online shoe store entrepreneur, will need to take while starting and running your business. But we would like to focus our discussion on 7 decisions that we think are the most critical when it comes to an online shoe store’s profitability.
These are:
- What kind of shoes should you carry?
- Should you build your online store on your own website on another platform?
- Should you purchase shoes from a known brand or build your own brand?
- Should you manufacture your own shoes or should you outsource? To an OEM or an ODM?
- How much inventory of each product should you carry?
- Should you ship local, statewide or National right from the start?
- What Marketing Strategies should you deploy to drive traffic to your store and build your brand?
Let’s look at each of these questions one by one.
1. What kind of shoes should you carry?
Perhaps the most important decision you will make is to decide what type of shoes you will carry in your online shoe store. There are many different types of shoes available on the market including walking shoes, running shoes, hiking shoes, boots, dress shoes, etc. And you could target different types of consumers including men, women, business professionals, fashion-conscious people, athletes, etc.
You need to decide which shoes you will carry and who your target market will be. This decision will have a profound impact on the profitability of your online shoe store.
If you’d like to learn more about the target market for shoes here is an in-depth article on the subject:
2. Should you build your own website or use another platform?
Another critical decision you need to make is whether to build an e-commerce website on your own or use another platform. If you build your own website, you will need to purchase a domain name, a hosting plan, and e-commerce software. You will also need to spend time designing and building your website or pay someone else to do it.
If you use another platform like Shopify or Amazon, you can set up your online store more quickly but you will be limited in terms of design and customization. You will also need to pay monthly fees to the platform and perhaps also additional fees per sale especially if you use fulfillment options like the one offered by Amazon.
This decision will have a big impact on your start-up investment costs as well as your recurring operating costs.
You may also choose to have multiple options in parallel – have an online store on your own website using a platform like Shopify or Wix and another store on Amazon. This will spread the risk but it will also increase complications in terms of inventory management and order fulfillment.
3. Should you purchase shoes from a known brand or build your own brand?
If you decide to sell shoes online, you need to decide whether to sell shoes from a known brand or whether to build your own brand.
There are pros and cons to both options. If you sell shoes from a known brand, you will have an easier time getting customers because the brand is already established. But you will have to pay for the privilege of selling their shoes and you will have less control over your business.
If you build your own brand, it will be harder to get customers at first but you will have more control over your business and potentially higher profits.
Once again you could choose both options. You could start with selling shoes from an existing brand (Nike, Adidas, Puma, Gucci, etc), and then as your business grows start adding a line of shoes with your own brand.
Selling someone else’s brand can also open up the possibility of dropshipping. This will remove the need to have your own warehouse and inventory. You will of course have to share revenue with the drop shipper. Nevertheless, this can be a great way to get your business off the ground at a minimal cost since you do not need to purchase products or have your own storage facilities in advance.
4. Should you manufacture your own shoes or outsource? And with an OEM or ODM?
If you choose to build your own brand, you need to decide whether to manufacture the shoes yourself or outsource production.
There are pros and cons to both options. If you manufacture the shoes yourself, you will have more control over quality but it will be more expensive and you will need to invest in manufacturing equipment, a factory and staff.
If you outsource production, it will be less expensive but you will have less control over quality. You also need to find a reputable manufacturer that can produce shoes to your specifications. If you choose to outsource you will need to decide whether to use an OEM or an ODM. OEM stands for Original Equipment Manufacturer. ODM stands for Original Design Manufacturer. An OEM manufactures a product designed by someone else (in this case you). An ODM can manufacture a product designed by itself. So you could ask the ODM to do the design for you, if you prefer. Of course, you will need to find an ODM that has experience designing shoes.
If you’d like to learn more about these options, here’s an article where we discuss in detail the Pros and Cons of OEMs Vs ODMs.
5. How much inventory of each product should you carry?
The objective of inventory management is to make sure that you have just the right amount of inventory on hand to meet customer demand.
Based on your sales projections you will need to decide how much inventory of each product to carry. This can be a tricky business.
Carrying too much inventory can be dangerous as you will tie up a lot of capital in stock and this will result in cash flow restrictions, lost sales, dissatisfied customers, and lower profits. And then you will need to find ways to get rid of the excess inventory.
On the other hand, if you don’t have enough inventory, you will miss out on sales. Both overstocking and understocking can be deadly for your business and if you do not have experience in inventory management, it might be a good idea to consider hiring an inventory controller – at least part-time.
6. Should you ship Local, Statewide or National right from the start?
Linked to how fast you want to grow and how much inventory you can afford to carry, you will need to decide whether or not to restrict your initial customer base to markets close to you – your city, your region or your state.
Starting locally will make it easier to manage your inventory and shipping costs. But the flip side of it is that you will miss out on sales from customers outside of your local area.
If you ship statewide or nationally from the start, it will be more expensive but you will have the potential to reach a larger audience.
You could always start small, gauge the demand, and then grow into markets further away as you grow your business to handle more orders, more manufacturing, more warehousing, and more shipping.
7. What Marketing Strategies should you deploy to drive traffic to your store and build your brand?
The final decision we will tackle in this article has to do with marketing strategies.
Your marketing strategies will vary greatly based on the type of products you decide to carry, the target market and its segments you will cater to, whether you will build your online store on your own website and run your own marketing and SEO efforts, whether you will sell existing well-known brands or your own brand and whether you will target customers close to your warehouses or those that are further away.
For instance, you will have different marketing strategies if you sell running shoes to athletes than if you sell dress shoes to fashionistas.
Similarly, if you intend to sell your own brand of products, your marketing strategy will need to focus on building awareness for your brand and getting it in front of as many potential customers as possible. On the other hand, if you sell a well-known brand like Nike, your marketing strategy will focus more on driving people to your store rather than someone else’s (including Nike’s).
If you sell products on your own website, there will be the trust question. In the beginning, nobody will have heard of you. On the other hand, if you sell on well-known online marketplaces like Amazon, people will trust your brand immediately and your marketing and brand-building strategies will be different.
As you can see you will need to choose a marketing strategy that is most appropriate for the business choices and decisions you have made. If you have a mismatch between marketing strategy and marketing needs for your chosen market and products, you’ll burn a lot of money down the marketing drain, potentially creating cash flow problems that your business may never recover from.
Summary
During the Covid-19 pandemic, our lives moved online. We started doing things online that we mostly did offline before the pandemic. Shoe shopping was one of those things. Many people liked the idea of going to a physical shoe store and touching the shoes they wanted to buy, trying them on, walking and jumping in them, before making the purchase. The pandemic threw that out of the door. Most people are now comfortable buying anything, including shoes, online. And the online shoe industry is only going to grow because of this trend.
This is a great opportunity for entrepreneurs willing to take the plunge into opening an online shoe store. So when we ask ourselves the question – are online stores profitable – the clear resounding answer is, they definitely can be.
If you plan to start an online shoe store then you will have many decisions to make. We reviewed 7 of the most critical ones in this article. You will need to decide what types of shoes to carry, whether to build your own online store from scratch or on an exiting online marketplace, whether to sell an existing brand of shoes or make your own, whether to outsource manufacturing or set up your own manufacturing unit, how much inventory to carry, whether to sell local or national (or global) and finally what marketing strategies to deploy to maximize the chance of success.
If you think carefully about each of these 7 questions and if you get them right, you will be on your way to having a successful and profitable online shoe store!
We wish you Good luck!
References
- IBIS World – Online Shoe Sales Market Size in the United States
