Taking a hasty position on the future of marketplaces has a great advantage: that of pointing out the pitfalls to be avoided in order not to miss the launch of your future marketplace.
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Who has never seen articles on social networks predicting the end of marketplaces? The self-proclaimed Irma authors illustrate their articles with failures from markets like Best Buy US, Albertsons, and Barnes & Noble, but relying on these failed markets to doom the entire model would be a mistake. First, because these examples happened more than ten years ago and the reality of marketplaces is very different today. Second, because they demonstrate a profound lack of understanding of the sector’s economic reality, the ambitions of new entrants and the expectations of its consumers. Taking a hasty position on the future of marketplaces, however, has a great advantage: that of pointing out the pitfalls to be avoided in order not to miss the launch of your future marketplace.
E-commerce is dead, long live e-commerce
In a period of macroeconomic uncertainty, growth and consumption forecasts are more uncertain than ever. For the distribution sector, one of the main risks is the explosion in the cost of unsold inventories. Furthermore, e-commerce margins are expected to drop from 6.4% today to 3.2% by 2025. Finally, the number of SMBs selling directly online is increasing at an unprecedented rate (the number of Shopify stores grew 3x in the last two years) disintermediating its relationships with consumers.
But e-commerce is not doomed, it is up to it to transform and renew itself to find new sources of sustainable growth. Marketplaces are one of them. According to a recent McKinsey study, companies that have built their own marketplace are nearly twice as likely to see their market share increase over the past two years. In addition to market share, marketplaces also stand out in the crucial aspect of profitability, on average this activity is three times more profitable than traditional e-commerce. Finally, marketplaces are also a particularly efficient tool for overseas deployment, as demonstrated by the international presence of Decathlon and Leroy Merlin in Europe.
Nobody wants to take the place of Amazon
If a few years ago every distributor’s dream was to become the next Amazon, today companies no longer aspire to that. On the contrary, they want to use the same technologies to better serve their customers, while preserving their brand identity. The model is a winner, as in 2020 Amazon lost three points of market share in France to the benefit of distributors who opted for the marketplace model.
The marketplace is currently the only model capable of offering a personalized offer in line with the new needs of brands. For example, luxury groups like Kering rely on the marketplace model to protect their brands, retain ownership of inventory and exert better control over pricing, product range and image.
The Proof of Concept, genesis and death of a marketplace
Market critics aren’t entirely wrong when they say that some of them don’t measure up. Successful marketplaces are fully integrated into the core business of the business, allowing them to offer a unified customer experience, wider variety and delivery times that are more in line with customer expectations. By isolating your market, it becomes much more difficult to evolve it. That’s what happened to Albertsons, which launched its first market as a new standalone site, and it failed. However, if some point to the failure of Albertons, few are the comments that specify that it has since relaunched a hybrid market, this time profitable! The hybridization of traditional e-commerce and the marketplace is the key to success.
Operating a market is not innate for a distributor. Consideration must be given to recruiting, onboarding and managing suppliers, product quality control, customer service, tax and regulatory requirements. It’s a new job that requires new skills. Developing your marketplace internally is an illusion today. Best Buy US cited this issue as one of the main reasons for its market closure.
Customer ambitions and experience
One of the key success factors is the ability to provide an ideal, unified customer experience. For example, Maisons du Monde’s results reflect a strategy to become the one-stop shop for inspiring and affordable interior design. This translates to a 47% growth in marketplace sales in the second quarter. And, for the fact that it only took three months for the Spanish market to reach 31% of the e-commerce turnover. In terms of customer experience, Madewell.com leads the way: when you browse the Labels We Love section, you’re not browsing hundreds of pages of identical products, but looking at a hand-picked assortment of products from ten brands. This is what we call curation.
Ultimately, the recipe for a successful marketplace boils down to a few things: offering the right product, at the right time, at the right price point. By extension, the marketplace model is not the alpha and omega of e-commerce, in some cases the use of dropship (direct delivery from the supplier) or even the hybridization of these two models allows for the creation of even more value, protecting margins and reducing risk .