Despite a lack of assistance from either the government or the banks, many online businesses are finding alternative ways to elevate themselves out of the recession, according to eBay’s second Online Business Index.
Defined as a HOOT (“Helping Ourselves Outta This”), this emerging type of SME is ensuring a brighter future for the second half of the year by cutting back on non-essentials rather than making redundancies or cutting staff benefits. For instance, many of these online SME businesses are altering their stock (35%), and reducing office costs (26%), advertising costs (22%) and shipping costs (20%).
This HOOT spirit is promising growth within the sector with two thirds (66%) of online businesses ordering up to 30% more stock for this Christmas than they did last year. Additional results reveal that:
- 69% of online businesses feel confident about the outlook for their business over the next three months – up 6% on last quarter;
- 57% expect their sales to go up over the next three months – up 4% on last quarter;
- 69% of online businesses are looking to expand over the next year;
- 76% achieved their sales targets in the past three months.
Welcoming the findings of the Index, entrepreneur Peter Jones from Dragons’ Den said: “It is extremely encouraging to see these entrepreneurs taking a proactive approach and shaping their own destiny. It’s exactly this type of entrepreneurial spirit our economy needs in the current climate.”
Profits & Prices
The pressure on profit margins has eased with a 12% drop in the number of online businesses expecting their margins to be squeezed over the next three months. Meanwhile, prices have stabilised, with 66% now expecting their prices to stay the same over the coming quarter – up 10% on last quarter.
Employment
These SMEs are also helping to pull others out of the recession with 41% of online businesses looking to hire. The average number of employees is expected to increase by 24%.
These findings appear despite one in six (16%) online SMEs having to delay expansion due to a lack of credit from the banks. The same number of businesses claim that their banks have failed to pass on the recent cuts in interest rates, pushing up the cost of loans.
Help not at hand
Although a number of online businesses are now reporting some impact following last year’s reduction in VAT, the majority (56%) still claim it has made absolutely no difference. Meanwhile, only 12% of SMEs have actually benefited from other new government policies such as the loan guarantee scheme and trade credit insurance.
In fact, many online businesses are oblivious to the policies on offer. The majority were unfamiliar with the improved financial advice available (65%); government-backed trade credit assurance (65%); the free “health checks” (66%); and any attempt to improve access to skills training (60%).
More tax cuts needed
Online businesses are clear that the route to restoring business growth is to cut taxes. 46% of businesses want to see a reduction in business rates while 38% say that a further reduction in VAT would be welcome, as 2.5% is not enough.
Commenting on the findings of the report, Mark Lewis, Managing Director of eBay in the UK said: “Online businesses continue to demonstrate that it is possible to succeed in a recession and eBay’s Index shows that for many, their businesses are starting to see signs of recovery. Confidence is up for the second quarter and despite it being difficult for some businesses to achieve their revenue targets, 75% still managed to do so.
“The findings of the Index are testament to how these people run their business and the decisions and sacrifices they make in order to succeed. In turn, they also contribute to the UK’s wider economic recovery, creating revenue, employment and opportunities for people to purchase goods at lower prices.
“Online businesses want the Government to force banks to loosen the purse strings and stop giving lip service to the extent to which they’re helping small businesses. And they want to see the Government doing likewise by cutting business rates, corporation tax and VAT.”
Self-proclaimed HOOT, Karl Baxter who has sold branded clothing through eBay since 2004, added: “The recession has been hard for so many of us but, in many ways, it has spurred me on. Rather than waiting for support, I took a serious look at my business and found ways to cut costs and work smarter. The joy of being an online entrepreneur is the flexibility it gives you and if anything, the economic climate has made me stronger and savvier.”
Personal Sacrifice
According to the index, these SMEs pay a high price in their personal lives with 64% failing to see friends and family as much as they would like, while half (50%) took a cut in income to get their business off the ground.
Exports
A boost in the export market has been influential for many of the HOOTs with the total value of exports through eBay totalling £293 million over 12 months.
While Ireland, the US and Germany remain important markets, exports to France and Italy were of particular note: for the fashionable French the top UK import was men and women’s clothing while Italians import large quantities of British shoes via eBay.
NOTES TO EDITORS Regional data: Where confidence is at its highest (% who feel confident about the outlook of their business over the next three months) 1. East (81%) 2. West Midlands (80%) 3= South West (76%) 3= East Midlands (76%) 5. South East (70%) 6. Scotland (69%) 7. Yorkshire (68%) 8. North West (67%) 9. London (63%) 10. North East (51%) Where growth is most prevalent in the UK (% of those expecting to expand their online business) 1. Scotland (79%) 2. East (77%) 3. London (74%) 4= Yorkshire (70%) 4= West Midlands (70%) 6. North East (69%) 7. East Midlands (68%) 8. North West (66%) 9= South East (63%) 9= South West (63%) In which categories is growth most prevalent (% of those expecting to expand their online business) 1. Baby (92%) 2= Sporting goods and memorabilia (76%) 2= Photography (76%) 4. Health and beauty (75%) 5. Home and garden (74%) 6= Collectables (72%) 6= Computing (72%) 8= Cars (68%) 8= Consumer electronics (68%) 10. Clothes (66%) Methodology for Online Business Index • The Online Business Index was compiled from a major survey of 458 online retailers, conducted by independent research consultancy FreshMinds • Survey fieldwork was carried out through an online survey which ran between Friday 1 May and Sunday 17 May • All businesses included in the index are registered as businesses on the eBay site and have an annual turnover between £100,000 and £3.4 million. The average turnover for survey respondents is £242,000 and the average number of employees is 8 • On average, the businesses covered obtained 37% of their income from eBay, and 32% from other websites, including 10% from Amazon. 20% of their income came from their bricks-and-mortar businesses