The world of online retail is changing fast, but it’s also making serious inroads into the profitability of those in the bricks-and-mortar side of things.

In all categories, tomorrow’s great retailing opportunities are now much more likely to appear on the internet than in physical stores, which is no doubt why it is drawing the attention of even former sceptics like Harvey Norman’s Gerry Harvey.

In April, Harvey announced his company’s intention to compete with a new online store he says will turn over $100 million within the next two to three years.

The complexity of tomorrow’s online possibilities doesn’t close off opportunity to existing retail businesses. This means that new entrants will bring to the world of online retail a whole new set of ideas.

To underline this point, Robert Wong, who heads up the retail initiative of the Australian Interactive Multimedia Industry Association (AIMIA), points to the fact that in the United States, the top 20% of ‘e-tail’ sites account for 70% of all sales.

Of a similar mind is Grant Arnott, content manager for Australia’s Online Retailer Conference (AORC), who points to the rapid pace of change occurring in online retail.

“There are very few online retailers that have been around more than 10 years, so when you ask about best practice there is not an established template. But it also changes so quickly, as yesterday’s template is virtually worthless. Even if you had it right two years ago, that was before the explosion of [Facebook]. There is the group buying phenomenon [exemplified by Groupon], that wasn’t here two years ago, so you have these game-changing dynamics to contend with,” he says.

“The retailers who are successful are constantly testing different pages on their sites, different content, different radio buttons. There is an amazing level of detail that goes into working towards better sales conversion, and a lot of science around usability and optimisation.”

AIMIA’s Wong says there is an even more fundamental consideration that all those entering online retail must make.

“Whether getting into online retail is worth it or not depends on how niche your product is,” he says. “If you remove geography and the ability to sell to anyone anywhere from the strategy, your ability to scale will depend on either price or clear product differentiation. If you have both, there is scope.”

Put simply, most companies selling similar goods simply won’t make it unless they can offer a clear advantage to their customers. Michael Kamahl is proprietor of bicycle store Woolys Wheels in Sydney.

“Before the web got popular,” he says, “I was wondering if someone else was going to do it, and I was strongly driven by the customer’s expectations, and I thought I should just dip my toes in.”

Kamahl’s online store has been in operation for eight years and he says he believes its principal benefit to customers lies in offering convenience. “Sometimes, I am surprised. We delivered some stuff to Darlinghurst [less than a kilometre away] last week. I wondered why they didn’t just come here.”

Kamahl says he spent $10,000 to get it running and every couple of years spends another $10,000 to add new features and keep it fresh. “Having a retail front, you always wonder, do they buy online because it’s cheap? Or is it convenience? I still can’t work that out.” Cristina Masci, founder of Absolutely Gorgeous, is a retailer without a physical shopfront, who sells her own brand of natural skin and body care products. She believes that it is possible to enter online retail at an altogether lower price. Even now, Masci says if she were to do it all over again, she would only allow $2,000 to build the website and get operational.

AIMIA’s Wong points out that at this end of the scale it is still entirely possible to begin with nothing more than an eBay shopfront, as DealsDirect did back in 2000. DealsDirect was recently the beneficiary of a $10 million investment from James Packer. Wong says the important thing at the beginning is less what you spend than what you learn.

“Don’t start with a Rolls Royce until you understand the dynamics of how this is going to work in your business. In the early stage, you are absolutely investing in your learning,” she adds.

Online retail is not risk-free, and both Kamahl from Woolys Wheels and Masci from Absolutely Gorgeous say they are careful to mind their business with total respect to the end customer. They acknowledge the risks to their business if they are incapable of keeping their store running properly or shipping products out effectively.

“Too many new retailers focus on the electronic customer interface but forget that the real physical experience the customer has is when the package arrives,” says AORC’s Arnott. “It’s a letdown if the goods arrive late, aren’t the right order, are in separate packages spread out with no explanation as to why, or arrive in a dull cardboard box with no branding. We test a lot of sites and see a lot of missed opportunities in an attempt to differentiate.”

Kamahl says he takes pains to ensure what is on the site matches what he has in stock, and he’s aware of the risks to his business reputation if the online store is out of stock. He says he keeps customers onside by contacting both them and his supplier immediately if he is unable to send the goods, and by only charging their card when the goods are actually despatched.

“If you were incapable of running your own web site, that would be a risk to the business. If you were going to set up a site, you definitely need to know how to run it. I wouldn’t leave that in the hands of someone else. You need full control,” says Masci.

Most sites are now able to take credit card payments. But Melbourne developer and managing director of the 30-strong Bwired Group, Sam Saltis, who has developed over 300 transaction-enabled web sites, says card security is something online retailers need to be wary of not just when processing transactions but upfront, in the development of their sites.

“There are sites out there that you can pay $40 or $50 a month and you’ll get an online store, but there are a lot of hidden dangers and people don’t realise that as soon as you start playing with payments and credit cards, you’ve got a duty of care to cardholders.”

But he stresses that clients must also be extremely wary of those they ask to build their sites. “There is a movement to a lot of outsourcing, where the developer itself has no technology. But if they outsource your development to a company in India, you don’t know who they are and you don’t know what they are doing. If something happens to the credit card information of your clients, they are not going to get back to the Indian company, they are going to come after you.”

Kamahl says that over the time the Woolys Wheels’ website has been running he’s had only two questionable incidents with stolen credit cards, one of which was a policeman’s. “We do get [scammers] from Hong Kong, though, saying send me the goods and the bill.”

The other risk for new players is, of course, the extra work running an online store entails, but this hasn’t deterred Kamahl. If he had to update the site himself, he says it might take a few hours a day, extending his working day, but that he has a web manager who looks after the site. He doesn’t find it disruptive to his business because processing the orders can be done at quiet times by existing staff. Others getting started could, however, find themselves simply with a longer working day. Prospective online retailers must plan not just for the cost, but the time invested in getting their site built.

“You definitely need to think of the time it’s going to take. If the developers say it will take three months, add another  three months on top of that. If you need to get a part-time job in the meantime, I wouldn’t leave the job until the site is built and up and running,” says Masci from Absolutely Gorgeous. “I asked around [for a developer], it was word of mouth, but I don’t like trusting anyone, it’s a pretty big thing and a fair amount of money.”

As for what it takes to run a successful store, Saltis from Bwired Group says many would-be retailers underestimate how much effort is required to build a site.

“I say give it eight to 12 weeks to get up and running, from strategy through to sourcing your images and then trialing and piloting what you do.”

But while he says that running an online store is not terribly different to running one in the real world, having a strategy is critical.

“The key elements still apply in the online space. Yet, it’s frightening, the number of large retail corporates that have no strategy at all – they’re just going to put 200 products up and see what happens.”

AORC’s Arnott says it is worse.

“The biggest mistake we see is that people make it harder to buy a product than it needs to be. Retailers like Myer and David Jones make big mistakes by not having their shops ready to go from the home page,” he continues.

More than a lack of usability, what kills many online businesses is clients who think if they just build a site, customers will come, according to Bwired’s Saltis.

“They think to themselves ‘I’ll pay Sam some money and he’s going to deliver me a website’ and the day they turn it on it’s going to be full on and they won’t know what to do. But if you are about to invest tens of thousands in a website today, the first question is what happens on day one of the launch, or day two.”

What it takes to become a successful modern online retailer all comes down to promotion and the ability to get noticed. Kamahl from Woolys Wheels is aware of, but relaxed about, such things as search engine optimisation and social media being used to attract customers.

He says the site promotes his real world store, which has occupied the same location for 31 years, and that as long as customers find him and it saves him the $25,000 it used to cost him to advertise in the Yellow Pages, it is paying its way.

Asked if running an online store is worth it, Kamahl says although he would most likely do it again, he isn’t sure.

“It does take a bit of time sometimes, but it is refreshing if it’s raining outside when someone orders something from Perth and I think, ‘right there’, that’s something we wouldn’t have sold today.”

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