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Making money from marketplaces

Online marketplaces are evolving into a more sophisticated selling channel for fashion brands and a way to attract new fans, and present an opportunity for retailers to expand their offer with labels that suit their customer.

By the time you finish reading this sentence, a customer will have bought a pair of women’s shoes on Ebay’s UK site. The marketplace sells one pair every five seconds, while a men’s footwear transaction is completed every 10 seconds.

Marketplaces are becoming the dominant model in ecommerce. More than half of all online sales globally are now made through a marketplace, research firm Internet Retailing reports, and market research company Forrester predicts this will rise to 66% by 2022.

Under the marketplace model, the retailer allows trusted third-party brand partners to sell products directly to customers alongside its own, for a commission. The retailer lists the product and, after a customer buys it, the brand ships it directly to the customer. The retailer records the commission as revenue, rather than the full amount for which the item sold.

Commission rates can be hefty – typically ranging from 10% to 25%, says Richard Hurtley, managing director of marketplace consultancy firm Rich Insight – but he and other advocates of the model argues that the cost is outweighed by the opportunities for brands to acquire new customers, test international markets and benefit from economies of scale, particularly when it comes to technology.

“Marketplaces are disrupting the wholesale and ecommerce channels by offering consumers greater choice, functionality, trust and convenience,” adds Hurtley.

We step in as a channel that can help brands reach their target audiences

George Graham, Wolf & Badger

The marketplace’s growing appeal is evident in the success of the larger players, from the generalist giants such as Ebay, Amazon and China’s JD.com, to the fashion specialists that include Farfetch, Zalando, and US-based Revolve.

It can also be seen in the growth of smaller platforms. Last month, London-based marketplace Wolf & Badger announced £4.5m in new funding to support its expansion, while womenswear-focused Little Mistress Group revealed that its new marketplace has exceeded expectations since launching in March.

“Brands looking to extend their reach might previously have sold wholesale into department stores and retailers [online], but some of those channels are shrinking, and the payment terms and rigid approaches make it an increasingly untenable route to market for many,” says Wolf & Badger co-founder George Graham. “We step in as a channel that can help brands reach their target audiences – we have accumulated a critical mass of customers looking for those sorts of brands.”

The marketplace model has dual benefits: brands can gain access to a wider customer base and the host retailer can expand its assortment, without a large up-front commitment of resources on either side.

“I think brands and retailers are taking marketplaces more seriously because they’re beginning to understand what this model can offer,” says Helen Riley, category manager, fashion and beauty, at Ebay. “Marketplaces enable brands and retailers to sell at a much bigger scale than their own bricks-and-mortar or dot.com businesses. And the opportunity to sell to other countries is a big benefit – you can ship all around the world, when you might not have the capability through your own site.”

Riley adds that Ebay is investing in front-end technologies that brands may not otherwise have access to, such as image recognition search.

This point is echoed by Glen Walker, co-founder of Trouva, which enables customers to shop for fashion and homewares across its network of independent boutiques: “We can develop technology at scale that the independent retailers we partner with couldn’t, and even offer things like cheaper prices for packaging.”

Farfetch points out that it acts as a ”powerful media partner”, offering brand adjacencies, content and access to a “high-intent” customer database that is hard to reach effectively through traditional media.

Closing the gap

For retailers, launching a marketplace can allow them to fill in any gaps in their own offer, boosting customer acquisition and retention rates.

Little Mistress Group unveiled its online marketplace in March. The platform is integrated into its existing site and now stocks 26 fashion brands, including Sass & Belle, Goddiva, Warehouse, Oasis, Pretty You London and Divine Grace.

In time, I believe most successful players will be some form of marketplace

Mark Ashton, Little Mistress 

CEO Mark Ashton says the marketplace is performing “way ahead of expectation”. It is now seeking to expand through partnerships with brands in other categories, such as make-up, beauty, homeware, gifts, lingerie, nightwear and swimwear. Ashton expects to have up to 100 brands on board by the end of 2019.

“For me, [launching a marketplace] was about tapping into the sharing economy and the concept that involves more than just selling product – it’s about serving the overall consumer demand,” Ashton explains. “It’s near impossible to get the maximum mileage out of a wide category offer, so partnering with that specialist supplier is key. If they have a decent set-up and can ship with no issues, it is a great solution. The marketplace brands really can contribute to that add-on sale that Little Mistress doesn’t offer.

“We’ve seen a decrease in bounce rates, increase in average spend and increase in the time that the customer spends [on the site], and the content is richer with more to see. It’s like having a load of new stores pop up in your local shopping centre that are aimed at the right demographic – you naturally stay longer and look more.

“In time, I believe most successful players will be some form of marketplace.”

Jonathan Cohen, managing director of Pretty You, says: “Without a huge marketing budget, our greatest challenge is brand awareness. You can have fantastic unique products, at sharp retail prices, but if the right consumers do not see it, sales will not reach their full potential. When I say ‘the right customers’, I mean those who fit into our customer profile, which has taken us a few years to fully understand.  

“As a brand, we have identified the importance of online marketplaces which share our brand ethos and customer demographic. As such, we carefully select such online platforms to work with as a strategic decision in order to showcase our products in-front of ‘the right customers’.

”Although we do give away more commission than we would like (up to 25% on some channels), and we still have to store and despatch the goods ourselves (including dealing with any returns and customer enquiries), we see this as a necessary evil to put Pretty You directly in the view of a new wave of potential customers.”

See box, below, for more comment from brands that sell on the Little Mistress marketplace.

 

W&b menswear

Wolf & Badger

Delivery challenges

However, like any ecommerce model, marketplaces carry risks. Many platforms still struggle, for example, with how to offer shoppers a consistent delivery service when the individual brands are responsible for – and may have different approaches to – fulfilment.

There is also a persistent concern that some marketplaces are flooded with too much product, which could dilute a brand’s value in the eyes of customers.

Riley says consistency of delivery is a key focus for Ebay: “The brands do their own fulfilment, so they decide the delivery terms. That can be a challenge, as it’s not always crystal clear to the customer what the delivery terms are.”

Ebay is working with brands to offer free delivery within three days as standard: “If they’re not able to offer that, they might not be prioritised for marketing activity on site, for example,” Riley explains.

Similarly, Graham says Wolf & Badger is working on helping brands with logistics, and streamlining the returns process for customers: “We have certain agreements in place – we monitor their time to dispatch the goods, and [the progress of the order at] various other points. Scaling it at a consistent level is the hard bit, especially internationally, but most of it can be done with technology.”

Many of today’s marketplaces are also focused on offering tighter curation.

“So many women’s fashion marketplaces are packed with product – you can see that most brands haven’t been vetted. It’s almost like a ‘throw enough at the wall and some will stick’ strategy,” says Ashton.

“There’s a big curation part,” agrees Trouva’s Walker. “How do you end up with a selection that make sense? You could get as many products as possible onto the platform and end up with something that doesn’t feel very consistent.”

Wolf & Badger is also very selective, says Graham: “We receive several hundred applications a month, turn away over 90%, and bring the best and most suitable brands onto the platform.” 

As more niche marketplaces emerge, brands will have more choice over which ones they partner with, and can pick those with a tailored, curated approach. Combined with the ever-increasing power of the bigger players, this makes the marketplace model difficult to ignore. Indeed, it could be dangerous to do so – brands and retailers that have stuck to the old way of doing things have fallen by the wayside. As wholesale opportunities contract online, as well as on the high street, marketplaces could offer brands a fresh way to connect with existing customers and reach out to new ones.

 

What the brands say

Drapers spoke to several labels that sell on the Little Mistress marketplace.

Adam Benjamin, creative director, footwear brand Paradox London

Essentially, the reason beind the decision to sell on the Little Mistress platform and others alike is to capitalise on the traffic generated from these sites. 

Primarily, sales are the ultimate goal, and high-traffic sites such as Little Mistress attract a consumer group similar to ours that are purchasing complementary products – in this case, occasion apparel. We can therefore offer footwear as an additional product offering.

Further to this, brand awareness is a key benefit, as the Little Mistress consumer may not be aware of Paradox London. Introducing consumers to the brand through partners who serve similar consumer demographics is a great way to build sales and brand awareness, and ultimately aid in the development of the lifetime value of that consumer.

Yathu Kanagaratnam, business development manager, occasionwear brand Goddiva

One element of Goddiva’s online strategy is to partner with online marketplaces that talk directly to our target customer.

Little Mistress offers a similar customer profile to Goddiva, so they are not seen as competitors – working with businesses such as this, you become more of a team. Both parties pushing for more visibility into marketplace; its a very targeted approach and provides more effective results than most digital marketing. Therefore, relationships such as this provide more added value and, most importantly, another sales channel. We work with other like-minded businesses such as [etailer] Little Black Dress very successfully – we support each other and essentially grow together.

There are pros and cons to working in a marketplace model.

Pros: We sell to a well-recognised and admired brand and reach their customers: this supports both brands through our independent extensive marketing. It also provides great SEO.

Cons: It used to be a manual product upload, which was quite time consuming, but it is now automated. Plus, our handwriting blends almost a little too well [with that of Little Mistress], but this has not affected sales on either sides.

We see this type of sales strategy as significant to business growth and visibility in the market. We are also creating a wholesale platform with a similar style of marketplace, which is due to be launched later this year.

Sue Reid, managing director UK and international sales, occasionwear brand Adrianna Papell

We felt the Little Mistress website would introduce the Adrianna Papell collection to the customer who is looking to buy a dress for any occasion, which is the DNA of our brand. We can only see a positive outcome where both Little Mistress and Adrianna Papell can gain from this partnership.

In general, our brands continue to sell in the bricks-and-mortar environment, which will always play an important role in our strategic growth plan. However, we also recognise that the marketplace channel is a fast-growing route for us to reach the widest distribution for our brands. 

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