Democratization of Retail and the Rise of Global Marketplaces

Democratization of Retail and the Rise of Global Marketplaces

Retail is Changing Retail is changing…fast. As unified commerce is becoming the norm, processes become increasingly complex. Retail is democratizing as consumers have full access to the prices, stock levels and offers of retailers, and can control where and when they buy. One of the most popular new channels are marketplaces. They have proven honeypots for the all-powerful consumer with low prices and excellent service. Marketplaces have grown at rates never seen before and appear to beat retailers on any turf, be it supply chain, assortment, conversion, customer service or delivery. This position paper discusses how retailers can collaborate with marketplaces while at the same time strengthening their own position and competing with them. We’ve laid out the critical building blocks to help transform your organization in our new world of democratized retail. Feedback and ideas are always welcome. Best regards,

© 2016 Demandware and Ecommerce Europe. All Rights Reserved by their Respective Owners. 2

Jorij Abraham Managing Director Ecommerce Foundation

Rob Garf VP of Industry Strategy and Insights Demandware

Agenda

•  Democratization of Retail 4 - 12 •  The Rise of Global Online Marketplaces 13 - 19

•  How to Collaborate with Marketplaces 20 - 27

•  How to Compete with Marketplaces 28 - 34 •  Conclusion 35


Topic Pages

The Democratization of Retail

1995

Shopping was Linear and Simple


As recently as 1995 consumers had a limited number of shopping destinations and choices. As the internet emerged, retailers primarily managed established store and catalogue operations.

It’s Now Fragmented and Complex

2015


Today, consumers interact with nearly four physical and digital destinations during every shopping journey. The path has become fragmented for consumers and operations have become complex for retailers.

Exponential Rate of Retail Disruption


Source: Democratization of Retail. © Copyright 2015. Demandware, EKN, Li & Fung.

The scale and rate of change in retail is massive. This unprecedented disruption has given consumers more access and control than ever. Retailers must embrace this reality and build sustainable advantages.

Connected consumers dictate and control the terms of retailer engagement. Retailers must extend unique brand experience beyond their physical and virtual four walls to wherever and whenever consumers demand.

Retail Has Become Democratized



New Paths to Purchase Emerge


Channel Retailer

Consumer

Channel Retailer Consumer Traditional

Journey

Distributed Journey

Retailers use engagement channels to PULL consumers to brand site

Retailers PUSH commerce directly into engagement channels

Democratization of Retail shifts engagement from Pull to Push


In the evolving democratized model, the conversion funnel pushes forward to the point of engagement -- distinction between marketing and commerce is blurred in the intermediary channel.



New Currencies Emerge A new set of capabilities – or currencies – are required to compete as marketing and commerce merge.


Dis

rupt

ion

and

Impa

ct

3-D Printing Smart TV’s /

Entertainment Consoles

Micro-Location Sensing

Consumer Wearables

Internet of Things

Low High

High

Commerce Adoption Rate

Messaging Platforms Social Networks

Mobile Payments

Web Browsers

Marketplaces

Commerce is Distributed into Channels


Transactions are increasingly occurring directly within what were historically marketing channels. Retailers anticipate significant revenue growth embedded in social networks, messaging platforms, and marketplaces.

Search Engines

Marketplaces are a Critical Channel for Many

Producer Wholesaler Retailer Consumer

Source: The Rise of Global Marketplaces. © Copyright 2015. Ecommerce Europe..


Marketplaces have become an intermediary (akin to department stores of yesteryear) wedged between buyers and sellers. Other media – like social and search – have entered the lucrative battleground.

The Rise of Online Global Marketplaces

Most Countries have a Dominant Marketplace

Players Share Arg CDMarket, Movistar 5%

Aus eBay, Coles, Woolworths 34%

Bra B2W Digital, Cnova 36%

Can Amazon CA, Costco CA 9%

Chi Alibaba, JD 80%

Den CDON, Coop 17%

Fra Groupe Casino,Vente-Privee 20%

Ger Amazon DE, Otto 55%

Ind Flipkart, Snapdeal 25%

Players Share Jap Rakuten Ichiba, Amazon JP 40%

Es Amazon Spain, eBay Spain 20%

Net Ahold/Bol.com, Wehkamp 20%

Pol Allegro Market Place 50%

Rus Ulmart, Wildberries 10%

S.K. Lotte Shopping, Emart 9%

Swz Digitec, Amazon DE 14%

UK Amazon UK, Argos 28%

USA Amazon, Apple 28% Source: The Rise of Global Marketplaces. © Copyright 2015. Ecommerce Europe.


Most countries have one or two leading players that have 20% or more of the market share. Amazon is the leader in the United States while Alibaba and JD.com are the leaders in China, with nearly 80% market share.

Marketplace Growth Outpaces Online Sector

$18 $12.5 $8.4

$0.557

$66

10

20

30

40

50

60

70

80

90

100

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ann

ual R

even

ue

Year

Amazon

eBay

Facebook

Alibaba

Mercado Libre

Google

Annual revenue in billions of U.S. dollars

Source: The Rise of Global Marketplaces. © Copyright 2015. Ecommerce Europe.


Marketplaces have grown spectacularly. Amazon is leading the way in “owned” revenue but Alibaba is bigger than Amazon and eBay combined, if you consider the market volume being traded on the platform.

$89

Many Marketplaces Walk in Parallel

1998 Introduced Amazon.co.uk and Amazon.de CDs, DVDs, Gifts

1996 Establishment of Amazon.com

2000 Marketplace is launched as well as Amazon.co.jp & .fr

1997 Partnership with Yahoo! and AOL One millionth order

2007 Launch of Amazon Payments 2009 Acquisition of Zappos.com

2015 Launch Amazon exclusives

2002 Launch of Amazon Web Services

2004 Express Shipping 2005 Amazon Prime & Kindle

2003 Launch of Taobao.com

1999 Establishment of Alibaba

2001 First 1 million registered users

2004 Launch of Alipay

2008 Launch of Tmall

2005 Partnership with Yahoo!

2009 Launch of AliCloud 2010 Launch of AliExpress

2014 Biggest IPO ever of $25 billion

1999 Establishment of MercadoLibre

2001 Partnership with eBay

2007 First IPO of $400 million

2008 Acquisition of Classified Media Group

2002 Acquisition of Lokau.com

2005 Acquisition of Deremate.com

Source: The Rise of Global Marketplaces. © Copyright 2015. Ecommerce Europe.


Many marketplaces grow in similar ways. Developing their own fulfilment network, payment infrastructure and expanding aggressively by acquisitions is a common expansion strategy.

Marketplaces are Booming Because They…

•  Create a flywheel effect: -  Broad selection = higher conversion

and basket size -  Extreme convenience = customer

retention -  Lower prices = economies of scale

•  Operate on a global scale •  Move quickly (fail fast), continuously

innovate and optimize processes


Why are marketplaces growing so strongly? Mostly because they are able to drive a flywheel of complementary elements. They offer a huge assortment at low prices and excellent customer experience.

Fashion: Buys exclusively, in for $1B to add luxury goods to its online marketplace

Intelligence: Partners with Acxiom to provide personalization and targeting capabilities to advertisers and merchants

Private Label: Launches Pinzon for private label soft-lines products

Delivery: Invests in Lyft, Singpost, KXTX, and others to expand last-mile delivery capabilities

Assortment: 17 main categories, 124 subcategories and 320 million SKUs in U.S.

Price: Adapts 2.5M million prices a day compared to 50K times per day by Walmart

Marketplaces Compete on All Fronts Marketplaces are no longer just for commodities, but are often a curated destination that operate and feel like digital specialty boutiques.


Marketplaces Continue to Gain Market Share

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

at least 10% at least 25% at least 40% at least 50% at least 60%

Marketplace Market Share by 2020

Source: The Rise of Global Marketplaces. © Copyright 2015. Ecommerce Europe. N = 274.


Based on a survey of 274 retail managers and executives by Ecommerce Europe, they expect marketplaces to have a sizable share of the digital market by 2020.

How to Collaborate with Marketplaces

Why Collaborate with Marketplaces?

•  Increase sales: -  Increase local customer reach

-  Expand internationally to new markets

•  Test (new) products in (new) markets

•  Improve operations: -  More targeted advertising

-  Sell surplus inventory

•  Leverage scale and infrastructure: -  Fulfillment

-  Payment

-  IT & Big Data


Marketplaces can help retailers by providing a scalable technical and operational infrastructure to grow into new channels and geographies in a cost-effective way.

Five Key Ways to Successfully Collaborate

1)  Leverage for Geographic Expansion 2)  Ensure Discoverability and Customer Acquisition

3)  Utilize the Scale of the Marketplaces

4)  Automate Data Synchronization 5)  Utilize as Liquidation Channel


1. Leverage for Geographic Expansion


Use the power (trust, traffic and relationships) of marketplaces to expand internationally with lower costs and risks than what is typical for a nascent business (i.e. no website, no local staff, less translation costs).

2. Ensure Discoverability & Customer Acquisition


Being present on marketplaces is only a first step. Being found is the next hurdle. At Amazon you need to get into the “Amazon box.” On eBay and Alibaba, being at the top of the list is what counts.

3. Utilize the Scale of Marketplaces

Fulfilment by Amazon

Delivery via Google Express

Payment with Alipay


Due to their size, marketplaces have a huge advantage in economies of scale and scope. Leverage their services in areas that aren’t core to your business to focus on unique and competitive advantages.

User Identification

4. Automate Marketplace Management

•  Products •  Images •  Prices •  Inventory •  Orders

Direct Interfaces Global Players

…………….

Local Players


No individual marketplace has global reach (yet). It’s imperative to establish scalable and repeatable processes, and supporting infrastructure, to synchronize enterprise data across multiple platforms.

Open APIs

5. Utilize as Liquidation Channel

Returned Goods

Damaged Goods

Overstock


Margin erosion due to excess inventory remains an Achilles heel for most retailers. Marketplaces provide a platform to sell overstock, damaged goods and returned merchandise while maintaining brand image.

How to Compete with Marketplaces

Five Critical Ways to Successfully Compete

1)  Focus on Value 2)  Create Smart Alliances

3)  Leverage Your Stores

4)  Fuse Commerce, Content & Community 5)  Build a Love Brand


1. Focus on Value

Price

Convenience

Assortment

Service

Shopping Experience

Setting the lowest price and giving out different kinds of

promotions

Offering unique shopping experience with online tools, e.g., design your own

products

Providing personal service, detailed product information,

offering the possibility to interact directly with experts

Minimizing friction, e.g., by having a lot of products in stock,

and many payment & delivery options

Selling a broad assortment with various models and editions, e.g., following seasonal changes to be on-trend

Source: Spark Optimus

Discounting to match Amazon’s aggressive prices is a race to the bottom. Amazon changes 2.5 million prices daily to be the most price competitive retailer. Retailers must focus on value to avoid being commoditized.


2. Create Smart Alliances

Purchasing Power

Platform

Delivery

Payment

Loyalty

Data Analysis


Join forces with other complementary businesses to build economies of scale and scope with sole dependency on marketplaces. Cloud providers offer a more effective way to innovate and integrate.

3. Leverage Your Stores

Experience Center: Media Markt Service Center: Xiaomi Service Store

Pick up point: Jumbo Meeting Point: La Place – V&D


While pundits declared the death of the physical store, the industry has experienced a renaissance in brick-and-mortar. Innovative retailers have leveraged locations for showroom, distribution and service centers.

4. Fuse Commerce, Content & Community

Commerce

Community Content

• Shoe Finder • ‘Switcheroo’ • Order Lookup

“Delivers the best performing products the game has ever known”

•  Online Forum •  Product Testing •  Brooks & Events

•  Blogs •  Running Tips •  Social Media


Genuine and authentic content helps shoppers identify with the brand and provide product information to accelerate their path down the purchase funnel. Leading retailers mash together content and commerce.

5. Build a Love Brand


Most marketplaces are analytical machines without feelings. Retailers can distinguish themselves by leveraging consumer profiles and preferences to drive personalization and build emotional relationships.

Transactions

Implicit Data Explicit Data

Traffic Patterns

Address

Email

Phone Numbers Brand Affinity

Product Attributes

RFM

Payment Methods

Date of Birth

Device Usage

Price Sensitivity

Service Notes

Loyalty Status

It is Still Day One of the Internet As retail continues to become democratized, it’s imperative to not only enhance owned-and-operated channels but to also utilize third-party channels, particularly marketplaces, to extend brand and reach.
