Why Adopt a Marketplace Model as a Retailer
“The worlds largest 18 marketplaces sell over $1 trillion worth of goods every year."
This week we have just seen that GameStop shares have soared more than 20 per cent based on a report filed that its largest individual shareholder was hatching a plan to adopt a marketplace model alongside its current offering.
“By the end of 2020 it is estimated that marketplaces will account for over 40% of the global online retail market.”
Adopting a marketplace model essentially transforms your business from a traditional retailer which procures stock and fulfils orders into a technology solution for 3rd party vendors, providing marketing and sales capabilities with limited to no inventory risk. As a retailer that already has significant website traffic adding a marketplace element will only prove to enhance customer experience, increase average order values and improve customer loyalty.
Lets compare two luxury fashion brands that compete for the same customer Net-a-porter and Farfetch
NET-A-PORTER in 2018 was sold in a deal valuing nearly ￡5 Billion to Yoox (becoming Yoox Net-a-porter). It’s net revenue at the time was around ￡1.7 billion
Compare that to Farfetch which many would think is a similar business competing in the luxury fashion market. It had revenues of around ￡310 Million, yet had a similar valuation of ￡5 Billion.
Farfetch looks & feels like an eCommerce website but operates a marketplace model - an integrated technology solution for luxury brands providing marketing and if required supply chain capabilities. The company carries no inventory risk. In return, Farfetch takes a percentage of sales of around 30%. Whereas Net-A-Porter is a traditional pure ecommerce retailer procuring stock and fulfilling its orders.
We know during this current time retailers are amongst the hardest hit sectors in the current economic crisis. Farfetch on the other hand estimates a gross increase in merchandise volume between 43 percent and 46 percent, a surprising uplift when most brands are facing dire sales.
A report came out this year which outlined that online marketplaces are over four times more likely to see shoppers make a purchase than retailers’ websites and apps. Nearly 60 per cent of shoppers in the UK said they had made a purchase with an online marketplace since March 2020. This compares to just 13 per cent of shoppers who say they’ve made purchase on a retailer’s dedicated website or app. Furthermore, between March and June the average online shopper purchased 11 items from marketplaces compared to just three from an online retailer.
With the coronavirus pandemic expecting to have added ￡5.3 Billion to the UK's e-commerce sector by the end of the year, online sales in 2020 are now expected to grow 19 per cent year on year up from pre pandemic estimates, rising from a total of ￡66.3 billion in 2019 to ￡78.9 billion in 2020. This highlights the vast opportunity online. It is also predicted that there has been 2 years worth of digital transformation across the industry over the past 3 months due to the pandemic.
MARKETPLACE KEY FACTS
- 12% of major retailers currently operate marketplaces & 32% are considering launching one. (Don't be left behind)
- 86% of retailers identify the customer transaction and relationship as a key component.
- 47% of online shoppers would prefer to shop on an online marketplace rather than going to various sites.
- Half of Online Product Searches Start With Marketplaces
Retailers who have high volumes of traffic can easily implement marketplace technology to capture increased revenue from commissions on sales and to test product and category interest. This strategy can save retailers significant amounts of upfront investment.
Mercarto Enterprise Technologies has the experience and technology to successfully enable you to adopt a marketplace model. Get in touch now to understand how we can transform your business into a value ecosystem.