Online marketplace momentum ushers in new era for retailers

Breadth of product

Breadth of product is a common goal for all of the retailers adopting this model. Van Oosten says B&Q has already added more than 100,000 products to more than triple the DIY retailer’s online range. It previously stocked 600 wallpapers, but that has grown to more than 7,500 since the marketplace launched.

“We trialled wallpaper and lighting to begin with and ended up with six and 10 times more SKUs,” he says. “We gained a better position in terms of search engine optimisation because you end up with authority in those ranges. This led to us accelerating the strategy across our core ranges.”

Van Oosten estimates that there are more than 20 million DIY SKUs across the globe, but B&Q’s goal is to have four million. The aim is to find “the best brands with the best products”, he says.

Boots chief digital officer Paula Bobbett says opening a marketplace next year will allow the health and beauty retailer to sell products where current capacity hinders – in areas such as nursery, healthy body and mind, and homeware.

“We have a baby business, but in terms of cots and nursery furniture it doesn’t work well logistically for us to do it, and it’s awkward in our own distribution network,” she says.

“Having a marketplace with suppliers who have those things and the fulfilment in place makes it easier for us to stock those items.”

Driving frequency

Bobbett adds: “The really big thing for us is driving frequency with our customers, so how do we get customers to come back and get all the things they need?”

Decathlon has added “hundreds of thousands” of SKUs since launching a marketplace in spring 2021, according to Ashley Milns, who looks after marketplace business development at the sports equipment retailer in the UK.

“It enables us to deepen the range of categories we already play in and add more desirable brands in any given category – Nike, Adidas and Puma, for example,” says Milns. “But it also opens up other categories because we don’t have the resources – we can make more sports more accessible for more people via a marketplace model.”

He adds that there are sought-after categories that are difficult to allocate resources to with the current infrastructure, such as parasport equipment, but a marketplace with its decentralised fulfilment model gives Decathlon a better opportunity to stock these items. “The marketplace business model is almost too good to be true,” he says. “You can massively increase your product range, and third parties deal with stock, pricing, content, storage and fulfilment, the returns, and aftersales, and they’ll pay you for it.”

When explained in such a manner, it becomes clear why retailers are looking to adopt the model. It’s also attractive for smaller, emerging brands to work with large retailers because they can benefit from the high traffic these companies already experience, but success will depend on good partnerships being forged.

Indeed, all the retailers Computer Weekly spoke to acknowledged there needs to be significant vetting and ongoing analysis of these third-party partnerships. With decentralisation comes a loosening of control, so retailers adopting this model are all working on putting suitable processes in place to avoid customer experience friction.

Retailers not used to working with hundreds of thousands of suppliers will inevitably face issues they haven’t encountered before, but the focus for much of the industry now is on the marketplace.

The time is now

Mountain Warehouse and Made.com – and, before them, Next, Joules and John Lewis – are other retailers following this new route.

One of the influential factors is greater technology capability, but another is the current disruption in supply chains from which no globally operational retailer has been immune. “It’s maturity from a retailer point of view, a tech point of view and a supplier point of view,” says Bobbett.

“The latter know how to set products up and the best way to set products up. The ecosystem has matured, so retailers are looking to get into it.”

Milns adds: “Brexit has meant retailers can’t afford to have the same ranges as before – we cut a lot of them. Brexit costs and the current disruption to supply chains are factors. Marketplaces help mitigate the risk of some of these things.”

The pandemic is responsible for much of the current global supply chain upheaval, and has certainly made retailers rethink how they manufacturer, source and store goods.

Sohini Pramanick, partner at consultancy OC&C, says: “The primary reason is reducing the risk of inventory you carry – the marketplace model fundamentally shifts the risk to the seller.

“If you think back to what department stores did with concessions, there are similarities – they would largely buy their own stock and sell it, then they moved to a model where they were effectively landlords.”

There’s also a cultural shift taking place in retail boardrooms across the UK.

“I am always flabbergasted that it has taken so long for retailers to have marketplaces,” says Van Oosten, acknowledging that until recently, most CEOs wouldn’t consider it. “Commercial teams usually work with suppliers – that’s their science, their art and pride, and suddenly I’m telling them to take the whole range and automate the pricing. It’s a big change for retailers.”

Bobbett adds: “Amazon is a search engine in its own right, and we want Boots to be the one place to go to search all the things. To do that, you need the product that relates to becoming the search engine of the future.

“When you look at how you grow your online business, you look at how you can acquire, how you can convert them, and the revenue you make. You also look at our biggest growth opportunities – when we look at our website, we believe range is such a massive growth opportunity for us.

“When I started in e-commerce 10 years ago, the conversation was very much about how you drive people to your website,” she adds. “The conversation now is about how you show up in the places your customers are shopping.”

According to Milns, who spends his days speaking to marketplace sellers and prospective sellers, many brands appreciate that they need Amazon but also want to reduce the risk of solely working with a digital behemoth.

“It means there is an opportunity for retailer marketplaces to take sellers away from Amazon,” he says. “We have sellers who sell more with us than they do with Amazon.”

Blurred lines

Computer Weekly has covered the evolution retailers such as Farfetch and Next are on to become platforms – and the growth of the marketplace model is not unrelated to that shift. Those two operate marketplaces but are also utilising their warehousing, web and delivery assets to help support digitally immature brands in the online world.

“There are multiple models of marketplaces – but it’s essentially about opening up access to the customer,” says Pramanick.

In terms of where a traditional e-commerce site ends and a marketplace begins, retailers are trying to look at this holistically, but it’s certainly causing some confusion in terms of semantics. They see marketplaces as a way of taking a cut from brands they otherwise would not be able to stock, but also as a method – if the right online ad techniques can be deployed – to attract a wider audience to their own-brand items.

Indeed, Pramanick says much of what constitutes doing marketplaces well is in launching one where customers do not really notice the model has changed. She cites Next and John Lewis as leading the way in this regard, in the UK.

Trading Places, an OC&C report released at the start of 2022, predicts that by 2025, spending through the leading online marketplaces will overtake the vast majority of e-commerce outlets in established retail and travel categories. It projects that marketplace growth will continue at 15% per year in the West, and become as large as direct e-commerce by 2025, when it will account for around half of online spend.  

The digital revolution since the onset of the pandemic is prompting retailers to treat their web property differently. They see they have new ways to drive customers, and those with the heaviest-traffic sites – such as the grocers, Boots and B&Q – are also selling online ad space to brands to drive further revenue.

“Before the pandemic, a lot of retailers weren’t particularly digital, and they have had to up their game,” says Pramanick. “They have a different type of asset to what they had before, and they are asking themselves, ‘How do I make the most of it?’”