Traditional Retailers are Losing the Growth Race
fdu’s guest blogger Julian Grindey is an energising and inspirational MD/COO/Trading Director, skilled in leading profitable change and transformation, inspiring strategic vision and commercial delivery and in driving retail and digital growth. Proven in delivering exceptional growth from turnarounds and scale up, in key omni-channel operators, including private label and international product sourcing strategies.
Non digital retailers face catastrophic failure in the evolving competitive environment.
E-commerce giants Amazon, Alibaba and eBay owe their meteoric growth to marketplace models. In this new era retailers and brands are scrambling to launch their own platforms, responding to their customers’ expectations on choice, value and service.
Digital marketplaces are accelerating faster than other areas of e-commerce*; leaving the traditional retail supply chain dead in their tracks. Harnessed correctly, their agility can extend assortments, accelerate sales and improve profits at speed. Managed badly and the retailer faces reputational and financial chaos.
Marketplaces are evolving as retailers and hosts create new variants to suit their customer and commercial needs, but at their core are two basic forms; Digital Marketplace and Drop Ship. A common trait amongst all forms is for the retailer to manage the customer sale but not the stock fulfilment. Choosing the most appropriate model requires an understanding of each:
- Digital Marketplace – Multiple competing vendors join the platform, set their product selling prices and then they pick, pack and dispatch their orders and receive the value of the selling price minus the hosts commission charge.
- Drop Ship – the host takes more control; curating a vendor list, setting the product selling price and negotiating the cost price. Once sold to the customer the item is still fulfilled by the vendor, after which time they are paid by the host.
The benefits of both include:
- An unrestricted product assortment – the assortment can be infinite and agile. In contrast to the limitations of space, location and speed to change of traditional retail.
- Rapidly scaleable – adding products to the assortment only takes minutes, leaving few other digital initiatives that can grow revenue streams as rapidly.
- Low financial capital requirements – traditional supply chains require massive investments in distribution centres and stores. These models require neither.
- Reduced working capital pressure – for inventory, as stock is not owned by the retailer until after it is sold.
- Removing overhead – and in doing so simplifying supply chain activities.
To extend the retail supply chain, the following points need careful consideration:
- Customer and Commercial Strategy:
Selecting a ‘best fit’ format requires an understanding of how customer expectation meets your commercial ambition, and platforms can be modified for acquisition or retention by serving; B2B, B2C, C2C and C2B. Options for use include:
- Host your own platform where your customer is seeking more choice.
- Sell your merchandise on a hosted platform where it reaches a new customer segment you want to serve.
- Use a platform to source product or sell your product to another business (B2B). Frequently used as a disposal outlet.
- Even allowing your customers to sell to each other on your platform (C2C) which is increasingly used in an emerging circular-social commerce. (e.g. magpie, depop and Afound).
- Protecting Your Brand:
Marketplace models change the way you deliver your customer value proposition (CVP) and your supply chain to meet evolving customer expectation. You have to re-asses and adapt your supply chain, customer service and enterprise controls to cope with scale, speed and diversity. Start with a pilot to prove concept, control and capability and then scale quickly at a pace that won’t put customers trust at risk.
- Assortment Planning:
Marketplace models bring infinite possibilities, capped by the vendor base and the platform you choose. It is tempting to overload your platform with options to realise the commercial gains quickly. The smartest retailers resist this in the short term; guarding against reputational risk for quality, choice, value and service and building considered Assortment Plans that align with the brand identity.
- Be Collaborative:
Choose your ‘Platform partner’ carefully. A small number have now addressed the challenges of controlling the product, service and supply chain delivery, with elaborate performance dashboards that surface problems in real time. If you are starting out then buy, don’t build – you can learn so much more from the platform provider and risk far less.
Aligned Vendor Management is critical, but new scale possibilities can overwhelm the under-prepared. Introduce ‘balanced scorecards’ and review in real time. Create a new structure to collaborate with your vendor and control how your CVP is delivered by them to your customer.
The Digital Marketplace is predicted to grow by 28.9% CAGR between 2019 and 2025 worth an additional $250b.** Adoption barriers are low, and opportunities are great for the retailer who understands their customer, the landscape and the risks.
E-commerce is serving the customers’ appetite for choice, value and immediacy. Traditional retail supply chains have to change for a retailer to thrive. Mastering marketplace platforms is essential for retailers and brands to succeed in the e-commerce sprint race.
*Matt Coode. International Head of Retail consultancy firm O, C&C.
**McKinsey research report; Digital marketplace growth 2020.