Retailing in the Week Ahead, Week 44
The fastest-growing part of retail, globally, across nearly every category, is eCommerce. Within eCommerce, the Marketplace model has been growing more rapidly than other business models. This raises two important questions: will marketplaces run out of road and how will they impact countries where eCommerce has not fully developed?
Let’s take on the first question: Will Marketplaces run out of road?
In every country, eCommerce marketplaces – websites where anyone can register and sell a product – developed quickly many years ago. However, in the early days, marketplaces lacked two things: 1) Brands and 2) Reliable and Fast Delivery systems.
In recent years, global eCommerce giants have been providing both things with growing enthusiasm. Companies like Alibaba, JD.com, Tencent, Amazon, Rakuten, eBay, Walmart and more have been investing in bringing brands into marketplaces with brand pages, special offers, special promotional days and dedicated pages to support brands. This has been supported by delivery systems that run at high speed and are often low-cost due to both scale and promotional support.
As these companies have invested, increasingly two things are happening:
- The big global giants are buying up the regional giants – examples include Alibaba’s investments in Lazada, Amazon’s acquisition of Souq and Walmart’s purchase of Flipkart. to name some prominent ones.
- The big global giants are increasingly competing head-to-head at a local level – examples include the battle for China between online-to-offline alliances including Alibaba with Starbucks, and JD.com with strategic support from Walmart. Likewise, in the USA, Walmart is doubling down on eCommerce in a bid to take on Amazon.
The result of these two trends is that a capabilities gap is developing. The big global marketplace operators are getting extremely good at the processes required to run big marketplaces – global sourcing, brand promotion, Big Data, personalisation, rapid and agile supply chain. Startups in countries where eCommerce has not yet taken off will face difficulty should the global giant decide to make local investments. This can be seen in examples such as Singapore where, prior to Amazon’s arrival, Alibaba beefed up its total solutions with Lazada and RedMart, or in Turkey where local websites Hepsiburada, N11, Gittigidiyor all invested massively in the six months prior to Amazon’s launch.
CONCLUSION: There’s still lots of road left.
Now for the second question: How will marketplaces impact retail development in markets where eCommerce is not strong yet?
Marketplace models, when running at scale, can often run on lower prices than modern trade retail formats. There are several easily understood reasons for this. These are, in no particular order:
- Efficient Inventory: The marketplace vendor does not need to invest heavily in warehousing ahead of demand, and therefore can use flexible approaches to stocking product.
- Efficient and Competitive Delivery: The marketplace vendor can work with ‘freelance’ labour – often called the gig economy – to make deliveries and therefore does not have to pay labour costs year-round, making it easy to flex up and down staff for peak periods of demand. Drivers often compete with one another to get the best ratings and therefore drive costs down.
- Top-of-Page Competition: Third party sellers (3P) need to compete to get their products landing at the top of pages and often this includes mark-downs to get price visibility. This creates a race to the “Top (of page)” approach to pricing (race to bottom on pricing depending on how you view it).
- AI-driven supply chain: Efficiencies can be discovered using AI to find better ways to route products with more and more data over time.
- Robotic Warehousing: Many of the marketplace retailers have developed highly efficient warehousing supplemented by robotics.
- Real-Time Adjustments: Physical retailers need to price products using stickers and labels and therefore any price change requires alignment at shelf-level; marketplaces can price in real time and therefore adjust to levels of demand.
- Search as Marketing Spend: Many marketplace leaders are the first place shoppers go to do research and therefore the ‘search’ replaces traditional marketing spend. Good marketplace vendors can charge suppliers for search placement. making the ‘marketing’ side of retail a net revenue driver rather than cost item.
All these advantages mean that marketplaces will probably be the first model of retail to enter markets where eCommerce has not yet developed.
As time moves on, the likelihood that the global giants will either be the first investor or will acquire the first investor in marketplace increase.
If you work in a market where marketplaces have not arrived, do not hesitate to contact us to get a briefing on what to expect and how to prepare. Our global eCommerce capabilities team is ready to get you ready.
Please share your thoughts on ‘Marketplaces’, ‘Traditional Trade’, or any other topic. Good luck in the week ahead.
In case you missed them, here are links to some of our most exciting publications from week 44:
Ray Gaul – Ray.Gaul@KantarConsulting.com and @KantarConsulting or @RayGaul on Twitter plus LinkedIn.