One Time We Successfully Mated A Bulldog With A Shih-Tzu.

Profitability for most, in ecommerce, probably in Retail, will not be possible in 2024. It will be the 2015 equivalent of gaining Unicorn status. Pause for digression. 8 years on from the development of the internet Super Nova we had another stellar year for good news stories. In 2015 no less than 70 startups achieved funding rounds valuing them above $1B, pretty staggering really. 42 of them were US. The admoniker Unicorn has stuck ever since. We forget the Unicorn was a thing of fantasy? Right?

Some interesting companies in the mix:

• Kabbage
• Vox Media
• Fanduel - great results today
• Coupa
• 23andme
• Twilio
• Okta
• Warby Parker
• Jet - remember them. Magician Lore is at it again. Wonder. Wonder how & why.
• Buzzfeed (IPOed)
• Mulesoft
• The Honest company
• Oscar
• Blue Apron
• Github - maybe the most important to our world in the year
• Lyft
• Wish - the next Temu (joking. This is the same joke used in Dumb and Dumber. Jim Carrey and Daniels in the diner flicking through the jukebox. Casually throw in, "They got the monkees on here. They were a big influcence on the beatles" Hat tip to Lorcan McCoy )

What has any of this to do with anything?

Blame Mike Ryan - Last week he posted this piece of analysis, which I just saw today. (Sorry Mike). But it seismic.

I want to get into the commentary in a moment but this time last year, I did UK research myself and landed on the stark reality that the only way for the SMB market to grow is through Cross Border Trade. I still hold that to be true. Mikes work compounds the challenge.

Last week, I got asked by a friend in Cape Town, why do things in UK retail go wrong so much quicker. A few simpler thoughts I had:

• Poor modelling.
• Too many outlets on too many streets.
• More traditional debt as opposed to investment. In a creaking sector, financiers want their pound of flesh, fast.

But Benedict Evans provided a more sobering view in my opinion. This bolsters the business model point above.

Before I go further with this ramble, I want to pause to say I think this research, coupled with Bens evidence has got to get UK SMB businesses asking, where do we spend our marketing dollars, sorry pounds and pennys.

Attribution has long been the word we have hidden behind, but now more fundamental considerations need to be had.

Where do you spend your money in 2024? Or can I plan to allocate better?

Let's let Mike set the scene. Over to you Mike. (Sidenote: As I write this with all my quips and nudges, I think this is to be read in the editing style of the Big Short).

Mikes analysis:

Here's a ranked list of Google's top 5 advertisers for the top 5 categories in the UK, along with my analysis of why this list... is the way that it is.

First, I highlighted what's already plain to see: Amazon is an incredibly dominant advertiser in the UK, taking the podium in 3 out of 5 top verticals.

But I highlighted Amazon anyway – because their business captures two key trends in the data:

1. marketplaces are dominating ecommerce in the UK

2. non-domestic businesses are too

??????????????????????-??????????????????

Of all the Top 3 advertisers in each vertical, only IKEA is not a marketplace. Boots is also a retailer, but launched a marketplace last year.

I did the math for you – 14 out of 15 is 93%.

This is an extension of a broader trend as pure marketplaces concentrate demand. Large retailers are trying to build marketplace flywheels of their own, or use marketplaces in a more targeted way to broaden or deepen their assortment.

Many marketplaces will spend big on Google because it helps accelerate that flywheel. They have supply in the form of sellers, and they need to match that supply with demand. Google still remains the largest "open" source for demand capture.

???? This is called a network effect - required for marketplace success. Without it, you fail.

???????? ?????????? ???????????????????

There are 15 unique advertisers in this table. More than half – 53% – are not homegrown.

Health & Beauty is the "most British" vertical, with 3 out of 5 top avdertisers based in the UK.

??????????: ?????? ?? ????????

Based on recent headlines about Temu's massive advertising budget, you might have been expecting to see "the T word" more often on this list. Late last year, you would have been right.

However, starting in mid January, our data suggests that Temu started reducing their ad spend – whether directly through budget reductions, or indirectly through higher efficiency or a narrowed range of promoted?products.

Something to consider - How to allocate budgets in 2024.

If I am to be smart about budget allocation as a small to medium sized retailer, am i better to hedge my bets on spending (as much) on google.. Can I let the marketplace do the heavy lifting and my job therefore is to spend media budget on the marketplace itself?

Lets not forget Ben's graph. Pretty scary. So retailers, who are struggling, particularly in the enterprise or lets say top 250 space are at risk of out marketing themselves. Spending too much in the wrong place to support too many stores. Right now in the US we have shrink to grow strategies. This is not happening in the UK. We see therefore, more closures and administrations weekly. Mike Ashley barely has time to wrap up his last bargain when he is onto the next one.

Earlier in the year, I reported that only 5 of the top 250 fashion brands in the RetailX report for 2023 recorded a profit. Only 5. Of the elite brands. They also produced a growth report which is interesting, but for now lets say we want the remaining 2,750 brands/retailers/marketplaces to pay attention.

Where are you going to get new customers? How are you going to grow.

Mikes analysis synopsises my long held belief, we have at least a two tiered system for commerce. We need to evolve what we do and why we do it. In physical retail, god I love the separation of the two, but for the purposes of this lets call it that. We need less of the same stores. There are beautiful towns dotted around the Pennines that do not need a JD sports on the street corner or a Ted Baker. The UK is small enough and advanced enough, with enough delivery companies to have next day delivery as standard for all. Interstore transfers, parcel lockers - the works. You do not need the cost of a store available every 10 miles. The Amazon/Tesco diseconomy of scale should not be your barometer.

Marketplaces dominate traffic and will grow this number in 2024. We will so more marektplaces. In fact the definition of what a marketplace is, will inform us, we have too many marketplaces.

But what does this mean for the SMB sector. Always the bridesmaid it seems. Switching agencies, fighting for ROAS. Reconciling how to create high end content for all channels and get your kids to do you TikTok posting. Can we be more strategic. Maybe.

Lloyd: "What are my chances?"

Mary: "Not good."

Lloyd: "You mean “not good” like… one out of a hundred?"

Mary: "I'd say.. more like one out of a million."

Lloyd: (slowly reacts) "So you're telling me there's a chance? … yeah!!"

Quoting Carrey in Dumb and Dumber again.

So you're telling me there's a chance

• Marketplaces are dominating spending.
• Retailers/Brands are evolving into marketplaces.
• Marketplaces and retailers already acquire 78% of all traffic.
• They have the power and the means to outspend you.
• And now, with their Retail Media Network they are asking you to spend to get eyeballs on their sight.

Mike is right to be nostalgic and say we got to fight to bring traffic to our sites. This should be an aim, but maybe not our primary one. Maybe it is to roll the dice and get your spend allocation aligned to your best niche marketplace or retailer with a more mature RMN. They obtain the front line, more expensive traffic, your job is to land an already warm lead through their platform.

Isn't that much easier now altogether? Me, being Irish wrote that last line through a healthy dose of cynicism. But the path to growth or something better is to try something different.

What got us here, won't get us further.

#strategy #marketplaces #advertisingstrategy #rmn #retail #ukretail