Are marketplaces the future of retail? It certainly seems that way, with the growth of marketplace revenue predicted to double between 2017 and 2022 and marketplaces already accounting for 52% of global web sales in 2018.
The benefits can’t be ignored: marketplaces bring traffic, provide value-added services in technology, marketing and delivery and, for retailers, offer the means to drive increased choice for consumers (assortment expansion) without the need to invest as much on resources and inventory.
But before retailers attempt to become the next marketplace giant, they need to consider the customer experience (CX). An endless aisle of seemingly unrelated products can confuse and lose customers, so the retailer must keep the CX front and center in all decision making.
There are 4 key types of marketplaces for retailers to consider:
An open marketplace, where sellers self-list their products, such as Amazon, eBay and Alibaba, enables retailers to surface their brand through virtual shops. The success of open marketplaces varies: while few retailers are attempting to take on the Amazon giant, Walmart and Target have tried their luck in the US and, in Germany, as a result of its acquisition of Hitmeister, Real is also making a play.
Many fashion brands and retailers in Europe have turned to a specialist marketplace to deliver the experience they know their customers will expect. Zalando, for example, is a channel that only serves brands and vertically integrated retailers that make and sell directly to the consumer. Smaller sites like Wolf & Badger cater to independent brands and take a heavily curated approach to deliver an exceptional CX, and fast-growing marketplaces such as Farfetch are focused on luxury brands with a high-quality delivery service.
An adjacent marketplace is one where a retailer sets up a separate part of their own website to sell products from other companies, usually curated to match their customers’ preferences. Examples include: ASOS, which has a marketplace with specific themes and independent brands; Little Mistress, which brings together specialist like-minded brands; and Next – perhaps the most successful retailer in this area. Next has become a true multi-brand aggregator with ‘Labels’, its marketplace of brands, such as Boohoo, Birkenstock and Burberry. This part of Next’s business grew by 29% in 2018, demonstrating that successful expansion can be achieved when considering the wants, needs and expectations of customers.
An integrated marketplace is particularly effective when it is advantageous to offer product range extensions to offer more sizes or colours for products that a brand already stocks. It is a type of ‘hidden’ marketplace, where the retailer mixes an offering of products it both stocks and doesn’t stock. The integrated model has been used to great effect in the US, where as much as 50% of the range sold from a retailer’s website may not be stocked in their warehouse or stores.
Which route should retailers take?
A retailer embarking on a marketplace strategy has many options to consider, but first and foremost they must have the strategic intent and brand presence to operate open, specialist or adjacent marketplace models and deliver substantial results.
Many global fashion giants have decided not to follow the marketplace path, content for now with selling their own labels. For a multi-brand retailer, there is much to be gained from adopting an integrated marketplace model to grow and expand, but retailers must ensure that choosing this path does not have the potential to dilute their brand and damage CX.
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