Should you sell through a marketplace or build your own?

by | Jun 7, 2022 | Golf Apparel

Walmart, Best Buy, Target, Macy’s, Kroger, The Home Depot, J. Crew, Albertsons, Bed Bath & Beyond, Madewell — besides being marquee U.S. brands, what do all of these companies have in common? 

These retailers span sectors from technology to apparel to grocery to home goods, and more. But all of them use a marketplace model.

While millions of U.S. vendors have found success selling on marketplaces, the companies at the top are the ones running them. That begs the question: Should you sell through a marketplace or should you try to become one?

The rise of the marketplace

About a decade and a half ago, platforms like Amazon, eBay and Craigslist were stealing all the headlines. Proponents touted these early marketplaces as revolutionary. But according to Ryan Lee, founder and CEO of Nautical Commerce, they’ve been around even longer than that.

“B2B distributors, wholesalers and suppliers have been marketplaces — they just haven’t been tech-enabled,” Lee told Modern Shipper. “So they’ve always existed, they just have not been thrust into the public eye. These B2B platforms and companies power our economy in absolute anonymity.”

Lee previously worked for supply chain software firm Turvo, which was acquired by Lineage Logistics last week. There he built private marketplaces for brokers to facilitate transactions through a TMS.

At Nautical, Lee has created a similar platform for brands that want to transition to a multi-vendor marketplace model. He cited a compelling statistic that might sway them: Marketplaces grew by 80% year-over-year in the fourth quarter of 2020, more than double the rate of overall e-commerce growth.

“And the reason is the average order value is higher,” he explained. “The breadth of products is greater from a discovery perspective.”

Watch: E-commerce is the new global trading system

In the past five to 10 years, more and more Silicon Valley giants have embraced marketplaces as a way to create value by getting their products in front of more customers.

“This is like Apple, where you might end up buying other things in their ecosystem that are marketplace-enabled, offered by third parties, whether it’s an app or an accessory that works with the iPhone or the iPad,” Lee added.

The trend has accelerated even further with the release of Apple’s iOS 14 update, which made it more difficult for companies to track customers and their data. So instead of throwing money at advertisements, many have opted for a different approach.

“Dumping advertisements on Google is trying to get people into the top of the funnel. Whereas if you’re in a marketplace and you’re searching for a product, you’re already at the bottom of the funnel,” Lee analogized. “You’re on the cusp of conversion.”

If you can’t beat them, become them

The vendor benefits from selling through a marketplace because it boosts credibility and visibility, while the marketplace owner receives traffic for its own products. For example, Amazon benefits when a company like Best Buy chooses to sell on its marketplace because Best Buy customers are driven toward Amazon products.

But that doesn’t mean Best Buy, or any other retailer, couldn’t create its own marketplace.

“Amazon doesn’t have to be the be-all and end-all for marketplaces, right? Porsche could launch its own marketplace. They don’t have one, but they could,” Lee suggested. “And me buying ceramic Brembo brakes from Porsche, as a consumer of that vehicle, I absolutely would trust that more than just going into some parts company and trying to find that specific part.”

Lee predicted that soon there will be not hundreds but thousands of Amazons. They won’t look quite the same, though.

“Amazon I believe will be unbundled, just like Craigslist before it and eBay even before that,” he said. “And this unbundling is going to be highly specialized vertical marketplaces that complement either an activity or a thesis for the consumer, or the product itself.”

So what would that look like, exactly? Lee uses Nike as an example. Its specialized vertical is athletic apparel, and if it were to build a marketplace, it would probably want to try selling other athletic or apparel products.

“Nike right now, it doesn’t have a marketplace. If they had complementary products that maybe they didn’t manufacture but that looked great with my shoes, I’d be more compelled to buy from them because I trust them. I trust the brand promise, I trust their service levels,” Lee explained.

Continuing with the Nike example, Lee suggested that Nike Golf could ink a partnership with a golf equipment company like Callaway. As it stands, customers would need to go to a golf store or another location to get Callaway products. But Nike could instead agree to sell those products on its marketplace, bringing those customers into its own ecosystem.

Going a step further, Callaway could open its own marketplace to sell Nike Golf apparel. In that way, the brands would drive customers into each other’s ecosystems, an idea Lee described as “cross-fulfillment.”

“I believe the future of commerce is connected, where these marquee brands will share their catalog across one another. It’ll be discoverable. As much as you and I share photos with each other on our social media platforms, I think this is what organizations and marquee brands will do,” he predicted.

Lee’s big 3

But seeing the value in owning a marketplace is the easy part — actually building it can be challenging. Lee set out three core tenets that brands should consider when thinking about making the switch to a marketplace model.

“Marketplaces sit at the intersection of commerce, fintech and logistics,” he said. “Most marketplaces just don’t understand that when they’re building a platform, it’s got to be heavily fintech and logistics. The commerce part’s pretty easy — it’s really the logistics work that goes off the rails.”

On the commerce side, brands can take their existing e-commerce platforms and connect them to a marketplace platform like Nautical’s, where they would become the No. 1 seller on their own marketplace. From there, they would invite other brands onto the marketplace, having them connect their own e-commerce sites to one unified platform.

In terms of logistics, the process is more complex, but brands have a few options. The first is centralized fulfillment using a shared warehouse, where both Nike and Callaway, for example, would store products in the same facility. That could expedite the shipping speed of orders on the marketplace and make it likelier they arrive together.

Another option is to use decoupled fulfillment, which is how most marketplaces operate today. In this model, when an order comes into the marketplace, part of it would be diverted to Nike and the other part would go to Callaway.

From there, each would handle fulfillment through their own downstream processes. The experience at checkout would still be seamless, but the customer might receive multiple packages if the order includes products from both companies.

A third method would be for Nike and Callaway to leverage a third-party e-commerce fulfillment provider. This would be a company like Deliverr that aggregates warehouses and boosts efficiency by storing clusters of inventory from both companies at the same location. This is akin to the centralized fulfillment model, but neither company owns the warehouse.

Read: Amazon Web Services, Bosch collaborate on logistics marketplace

Read: First in line: Bed Bath & Beyond joins DoorDash Marketplace

But even after setting up the logistics network, there’s still more work to do. The fintech aspect of marketplaces is just as important, and according to Lee, it’s often the hardest hurdle his clients need to overcome.

“It’s the biggest surprise they run into, and a lot of times, it’s what either stops, delays or wholesale cancels a marketplace project,” he explained.

Unlike a traditional commerce company, the onus is on the marketplace to check for sanctions against vendors and distribute funds to the right beneficiaries — functions that would typically be handled by a payment provider.

As such, getting a financial institution to approve the marketplace is often difficult. To do it, brands need to provide a sort of proof of concept, demonstrating that they have a handle on who their vendors are and whether or not they are compliant. At minimum, there needs to be a mechanism in place for vetting vendors — both before and after they’re onboarded.

“You want to have a thorough onboarding process that starts with self-selection, letting the vendor, when they come on, give you all of the pertinent information to run what we call a compliance check against them,” Lee explained.

Once a company addresses Lee’s big three components, though, it’s essentially smooth sailing. With a marketplace, there’s no need to worry about assets — those come from other vendors. Really, all a brand needs to do is keep up with compliance checks and monitor its shared logistics network — and it may not even have to do that if it decouples fulfillment.

“Once you’ve got the muscle of operating a marketplace and get through some of the more challenging aspects of getting it set up, at that point, it’s a toll road,” Lee opined. “It’s asset-light — you’re not really having to incur inventory risk.”

The numbers are eye-catching. According to research from Gartner, retailers that use multi-vendor marketplaces can drive digital revenue upwards of 10%. And per Mirakl’s 2021 Enterprise Marketplace Index, retailers with marketplaces increased web traffic by 34%.

It’s no wonder, then, that some of the biggest brands in the U.S., from Walmart to Macy’s to Bed Bath & Beyond, have all built their own marketplaces. It may not be long before they’re ubiquitous.

You may also like:

KlearNow aims to empower intermodal operators with new drayage marketplace

Emerge raises $130M Series B to scale digital freight marketplace

Nabis diversifies cannabis brands with $23M raise for distributor marketplace

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes Lineage Logistics (No. 357).

original article can be found here