How Vertical Marketplaces Drive Digital Transformation in Enterprise Retailers

We believe that enterprise retailers can (and should!) build their own marketplace that caters to the interest of their specific demographic. 

In 2019, the top 100 marketplace websites rang up $2 trillion in sales and accounted for over half of global ecommerce sales. According to analysis by DigitalCommerce360, gross market value (GMV) grew 18% last year. To be specific, 35% of online consumers shop at niche or vertical marketplaces, particularly in the apparel, sneakers, or home verticales. 

And the market’s biggest players have noticed. Luxury retail marketplace Farfetch, for example, acquired premium sneaker consignment marketplace Stadium Good. Similarly, Foot Locker invested in GOAT -- a B2C second hand sneaker marketplace. 

The US Chamber of Commerce found that B2C retail marketplaces are becoming popular among buyers. This rise is driven by niche marketplaces that offer highly personalized content, deep assortment in their chosen vertical, and a sense of community among like-minded shoppers.

More shoppers care about the brands and the marketplaces in which they spend their hard earned dollars. The percentage of US shoppers who were familiar with, but indifferent towards, online marketplaces dropped from 50% to 44%. The discoverability and visibility technology to build relationships with brands and reach customer demographics is now here. 

Modern retailers can reach anyone in the world who shares those interests and relates to their story, be it a curated assortment of premium menswear or the biggest selection of electronic goods in history. In this article, we’ll detail how a retailer can strategize and launch a successful vertical marketplace by shining the spotlight on its customers, its own product assortment, and its partner brands, 

Elevate the omnichannel customer experience as the goal

Focusing on the customer clarifies what is important and cuts down on what’s not. Catering to a specific consumer demographic allows B2C retailers to effectively leverage custom content and customer data. 

According to McKinsey, sky high consumer expectations drive the emergence of content customization in niche marketplaces. It comes as no surprise, then, that the businesses that successfully make the shift to digital are the ones who treat customer satisfaction as their primary business goal.

However, while modern retail customers expect and demand a smooth omnichannel buying experience, few retailers deliver it.  By 2023, digital touchpoints will play a role in retail buyer journeys in over half of all total US retail sales.  Research has found that online retail marketplaces like Rent the Runway and Stitchfix may soon displace businesses that rely on traditional retail practices, like malls, department stores, and other household names.

Retailers must become omnichannel players to compete with the imcumbents and offer the experience their customers demand. This is because consumer’s lives have changed drastically. These changes have impacted their buying behavior, the offering that meets their needs, and the right medium with which to match those offerings to them. Retailers need to offer just as much or even more value in their digital touchpoints and preferably, multiple free or fast fulfillment options.

Offer a curated merchandising mix

Retail leaders don’t have to start with the perfect ecommerce model from the get-go. The retail tides shift rapidly and thus, it’s more important to be adaptable than perfect.

How?

Rapid testing and implementation. One of the most critical mindsets for companies making the shift to digital is a “test-and-learn” mindset. These companies can quickly react and adapt existing offerings to customer demand. This allows retailers to go to market with the right mix at the right time.

Unsurprisingly, McKinsey found that senior leaders at the best-performing companies are continuously learning new tools, knowledge, and best practices that they can take back to their teams. These companies also take full advantage of the visibility of customer data in a digital environment; over half of these top performers analyze customer data weekly.

This approach helps agile B2C retailers nail down the optimal way to match their offerings with the market, amidst shriveling margins and emerging competitors. 

For B2C retailers, in particular, the technology is now available for them to test new brands and product offerings on their digital marketplace, without waiting an entire season for the results. Retailers need to determine how consumers’ lives are changing at a macro level. Then, they need to consider the impact trends have on their target market at a micro level. Finally, they need to offer the customer experience and product merchandising mix that best meets these needs and expectations. 

Fortunately, digital technology allows modern merchandising teams to gather and analyze customer data, experiment with different product assortment and merchandising mixes, and deliver the results to the customer, within days or weeks. 

Present streamlined order fulfillment & vendor enablement

For retailers interested in launching their own niche or proprietary marketplace, it’s worth asking:

• Who will our marketplace serve? How does this reinforce our brand narrative?
• What is unique and compelling about our marketplace?
• What technical elements do we need to put in place to launch and scale our marketplace successfully?

For most of the largest B2C retail and marketplaces online today, the lowest common denominator that answers these questions means offering fast -- and often free -- fulfillment for their customers. There are a myriad of options available, like relying on third-party fulfillment services, or enabling a buy online pick up in store (BOPIS) micro-fulfillment with their own distribution network. 

The vast majority of major retailers, for example, rely on some sort of dropshipping model to power their supply chain and fulfill orders. In this model, a retailer sends customer orders directly to the brand or vendor who in turn, fulfills the order under the retailer’s brand. The final leg of the fulfillment could be either an in-store, curbside pickup or a direct home delivery.

Read more: Building the dropship fulfillment business case for wholesalers & retailers: Pros, cons, & models 

To enable this streamlined order fulfillment model, however, B2C retailers are not just competing to provide value for consumers, but also for their sellers. Retail experts expect that marketplaces who offer seller services such as data-sharing agreements, trend analytics, and PDP content support will win the market, thanks to exclusive brand partnerships, profitability, and a better overall customer experience.

Historically, retailers have achieved success operating as their own logistical islands without any outsourced help. But as with a modern order fulfilment model, that is no longer a viable option for digital marketplaces. 

Next generation retailers will rely heavily on their sellers. If a retailer wants a timely, curated product assortment, then they either need the most sought-after sellers or the most sought-after products.

Convictional: Enabling a best-of-breed technology strategy for B2C marketplace retailers

According to a 2020 Forrester study, 40% of consumers participated in ecommerce more often as a result of COVID-19. 

However, retailers with legacy systems struggle to meet that demand. Their teams spend hours trying to integrate with their own vendors’ ecommerce platforms. But jumping ship from their battle-tested EDI systems poses to big a risk. 

Most retailers, in fact, easily transition frontend capabilities to the ecommerce platforms like Magento, Shopify Plus, or BigCommerce, but struggle with the backend logistics to adapt to the peaks and lows of demand.

This is because most backend marketplace software these days tend to push a one-size-fits-all strategy. They claim to do everything, from customer data management to vendor management and supply chain. 

From our customers’ experience however, because of the complexity of B2B software, this hardly works. We believe in a best-of-breed technology strategy, powered by a marketplace infrastructure that facilitates information flow -- but replaces as little as possible. 

Thus, the solution for most B2C marketplace retailers that already have existing systems isn’t a replacement, but a connection and information platform. The right technology ensures the information flows seamlessly between retailer and vendor. Vendor product information gets updated automatically so that merchandising teams don’t have to manually update them. Stock levels are synchronized and updated in real time, so customers never order low or out-of-stock items. Fulfillment details are shared to ERP or PIM systems, as well as to the customer, so customer success teams no longer field “where’s my order?” questions.

Retailers need an integration partner that sits securely between their ecommerce environment and their sellers’. This is a backbone infrastructure that brokers information between its ERP or PIM and with the ecommerce platform that powers its marketplace website. Having an agile marketplace facilitator like Convictional allows retailers to plug in, test, and switch out PIMs, ecommerce platforms, or customer data aggregators until they find the one that works for them.