People and their brother are getting an online marketplace. What should investors do with it?
Channels that allow third-party sellers to list, sell, and ship items on an established retailer’s website are running out of time. Chain of grocery stores
there is one, and Garment sellers too Express, Lands’ End, J.Crew and
Hudson’s Bay, a Canadian department store, launched online earlier this year.
Be the latest to jump into the group, announce it will launch its market in the second half of 2022.
The immediate economic appeal is obvious: They are a relatively low-cost, high-margin opportunity. There is very little upfront investment on the part of the retailer, which does not have to buy and hold inventory. Instead, they list third-party sellers’ items on their website and take a cut — often 15% — of the seller’s revenue. According to Edward Yruma, chief executive officer of KeyBanc Capital Markets, that rate can be as high as 40% for some established markets that offer fulfillment and advertising services to their sellers.
Timing also matters, because the pandemic has Give online sales a shot in the arm.
launched into the market in 2009, has seen total merchandise volume — total sales through the platform — double in 2020, according to estimates from Marketplace Pulse. Before the pandemic, growth was muted by more than 35%.
An overall calculation shows that even modest sales volumes have the potential to impact profitability for a struggling retailer. Assuming a modest occupancy rate of 15%, if Macy’s were to go online in 2019, it would have to sell for about $108 million – or less than 2% of its digital sales for the year. that – to increase gross margin by 0.1 percentage point. That number could be higher after charging the platform provider Mirakl, or lower if the actual rate is higher.
Retailers have their own reasons for adopting this approach, including the introduction of new categories. Example: Kroger is using a marketplace platform to sell goods from
Urban Outfitters uses one to sell second-hand clothing.
In some cases, the marketplace model can help retailers reach picky suppliers. Hudson’s Bay for example, can’t get your hands on the new
Adrien Nussenbaum, co-founder and co-CEO of Mirakl, says the bags are what shoppers want but can offer them through the resale market.
If the idea sounds too good to be true, it probably is. For retailers, there are obvious risks. Brand dilution is a huge problem, especially for apparel. If a customer’s experience with a third-party seller is not good – whether in terms of quality or speed of shipping – it can skew retailers’ perceptions.
Newer markets seem to be trying to avoid both risks by choosing more sellers. Juozas Kaziukėnas, founder of Marketplace Pulse, notes: A lousy integration with the in-store experience can also be harmful. For example, shoppers may feel frustrated if they are unable to pick up and return market items at the store.
Matt Baer, chief digital and customer officer at Macy’s, said in an email that the department store will use the marketplace platform to “test new brands and categories” and “react to real-time trends”.
That’s worth it, but there are also two caveats. First, the fact that these retailers need the market to spot trends is not a cheering endorsement of their ability to capture the market.
Consider the sample of apparel sellers who built the market: J.Crew, launched in 2018, faced a pandemic last year. and filed for bankruptcy. In the five years prior to Covid-19, both Express and Lands’ End saw total revenue decline at a compound annualized rate of 1.4%, while Urban Outfitters’ growth followed the same measure. law unchanged. Macy’s has recovered in a healthier way this year than some of its department stores, but is still in a turnaround.
Another reason to be cautious is that knowing a lot about a third-party seller’s product can return success. Amazon has been closely monitored for allegedly using data on independent sellers to develop competing products, for example. That is not to say that other retailers will take such actions, but complications can arise even in the presence of a conflict.
According to Mr. Kaziukėnas, retailers have been trying to use online marketplaces to revive online sales for more than a decade with little success. The new crop of retailers participating in this model is hoping to succeed while iron prices are hot. Instead, holders who are uncertain about their markets may leave some burn marks.
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