Marketplace

The State of Retail Marketplaces & Platforms 2020

In 2020, COVID-19 shot ecommerce retail forward 10 years into the future and closed brick-and-mortar stores. This hammered a final nail into the coffin of the department store as a resilient sales channel.

Because of this, retailers have had to go one of 3 ways:

In this report we track how those decision paths played out over the uncertainty of 2020. To do this, we interviewed and analyzed responses from three ecommerce & marketplace experts who have a bird’s eye view of the retail landscape:

We talk about COVID-19’s effects on vertical and horizontal marketplaces in 2020 and what the landscape will look like moving into 2021. 

We touch upon a broad swath of brands and marketplaces from Amazon and Etsy to Best Buy and Anker, in order to offer a high level look at the state of the industry in 2020. 

Finally, we discuss what emerging marketplaces and retailers can do in 2021 to “Amazon-proof” their storefronts and aggregate more demand.

The struggle to fulfill demand

Whether or not their ecommerce channels were ready for the onslaught brought about by COVID-19 lockdown and quarantine measures, retailers struggled to meet the uptick in customer demand.

Retailers whose digital channels were still in their infancy struggled to fulfill orders on time, enable curbside pickup, or even meet the increased traffic on their ecommerce store. Mature ecommerce sellers, on the other hand, struggled to avoid stockouts and deliver orders as promised. 

These problems poured over to retail marketplaces. If their supply chain used a dropship model, they were able to fulfill some but not all of their orders, depending on their partners’ individual capabilities. 

However, for sellers who relied on a third party marketplace to fulfill orders – Fulfillment by Amazon (FBA) in particular – they felt the immense pain of having a single point of failure in their supply chain.

Even when Amazon added almost half a million employees and anticipated they needed double their square footage in 2020, they still ran out of space. In March, FBA embargoed shipments for non-essential items to increase their capacity to ship household and medical supplies, even as the Amazon website itself continued to receive orders for non-essential goods.

In contrast, one of the biggest marketplace winners in 2020 was Etsy, the B2C crafts marketplace. When its executive team realized that most customers started searching for face masks in early 2020, it quickly sent out a memo to its sellers to make facemasks. As a result, in the third quarter earnings call, CEO John Silverman reported that they added 15 million new buyers to their marketplace. 

Both Marketplace Pulse CEO Joe Kaziukėnas and commercetools CPO Kelly Goetsch agreed that demand and order fulfillment will continue to dominate retail headlines in 2021. Joe said, “Going into 2021, fundamentals like software, agencies, fulfillment, advertising, and financing are key. They power the flywheels of e-commerce and will continue to attract capital. Enabled by them, Amazon, as well as the other marketplaces, will get bigger.”

Marketplace seller acquisitions & wholesale enablement

On August 24th 2020, Anker, an Amazon-native brand that debuted on the marketplace in 2011, went public. Despite its ongoing success on Amazon, Anker continues to sell its products on Walmart’s marketplace and its own ecommerce website.

Laggard investors saw this as a signal that Amazon-native brands could be profitable enterprises.

One of the biggest retail headlines in 2021 will be about the acquisition of Amazon-native brands. Private equity firms, like US-based Thrasio who raised $260 million in 2020, are looking to acquire the next Anker. 

In the eyes of these firms, the only risk in buying these sellers is their dependence on Amazon. Similarly, DTC holding companies like Pattern Brands and 4x400 will continue the acquisition and brand development work they did in 2020. 

Once the firm acquires a handful of sellers, they can use economies of scale to centralize marketing, sourcing, merchandising, and content knowledge amongst those sellers.

In 2021, however, a new kind of holding company will be joining the fray. In 2020, firms like REV Commerce have begun to acquire classic brands like Pier 1 and Radio Shack and digitizing their brick-and-mortar brands into notable online storefronts. We expect this to continue in 2021 and beyond.

On REV Commerce’s recent acquisition of Pier 1 Imports, and their subsequent ecommerce replatforming to Shopify, Jordan observed, “[Classic brands] are good at selecting and curating products. That's where we're going to see a lot of a brand's value. It doesn't make sense for them to carry a lot of their own inventory. The most logical thing to do is to enable a dropship marketplace model, rather than hold inventory.”

It’s the last half of Jordan’s statement that signals a chasm-like gap in the market for marketplace retailers and merchandising teams, amidst the ever-increasing number of brands on the market. 

Knowing the gap in the market, ecommerce companies like Shopify and Lightspeed leveraged the urgency caused by the 2020 retail reset to expand their omnichannel, wholesale footprint. 

As we discussed in our article on Estée Lauder’s brand incubation strategy:

“Most sourcing teams are run by experienced executives who have been looking at the same industry for 20+ years. Historically, to find brands, most teams look to other marketplaces. However, finding truly unique, emerging brands is challenging because there is no index or aggregator for DTC brands, especially brands who are quietly doing phenomenal numbers for their niche.” 

In October 2020, Shopify announced their wholesale marketplace Handshake that used its API to integrate sellers across its networks.

In November 2020, a leading POS company Lightspeed moved deeper into using technology to increase their wholesale, omnichannel moat with Lightspeed Supplier Connect, a proprietary supplier network that their retailers could access from their in-store POS systems.

Shopify and Lightspeed understood that to be competitive and “Amazon-proof” to their merchants, they had to help their merchants balance assortment (which drives discoverability) and curation (which drives purchases). Their respective supplier networks gave their customers a wide assortment and a way to test how well a new product fulfilled customer demand. 

However, large retailers have yet to figure out how to finagle this technology. 

Enterprise retailers tend to keep their merchandising and product information close to their chests — and for good reason. Retail is a cutthroat industry. 

As a result, there doesn't seem to be anyone in the market with a consumable directory of seller product data, especially for DTC companies. 

In addition, most large, classic sellers use EDI to transmit orders while modern sellers on ecommerce platforms like Shopify use API. While there are enterprise companies like SPS commerce who integrate with hundreds of suppliers and 3PLs to manage their orders and inventory, these service providers are not focused exclusively on online marketplaces.

This is one of the gaps in retail that exists today. Jordan says, “Shopify sellers want to sell products across many channels. A large percentage of our merchants are dropshippers who don't carry or own inventory. Having a pool or a directory of product information from which they can easily pull is extremely valuable, whether the purpose is to enrich their existing catalog, creating a niche site, leveraging existing brand affinity or loyalty to open a new market.”

With the launches of Shopify and Lightspeed’s wholesale networks, 2021 will be the year when wholesale trade between EDI-based classic retailers and API-first modern retailers is unlocked.

The death of the ecommerce monolith

At a crucial time when retailers needed to quickly expand product assortment with face masks, ensure accurate inventory counts, and enable curbside or buy-order-pickup-in-store (BOPIS) last mile fulfillment, most retailer’s technology stacks failed them. 

EDI-based, monolithic technology ecosystems could not keep up with the fast-changing environment wrought by 2020.

Kelly says, “A lot of retailers release into production once a quarter or once a month. Now we're getting to a point where you have to release 10-20 times a day. It takes multiple iterations to get these features right. Large retailers with a decentralized application and who have multiple ways of fulfillment are able to innovate and therefore iterate, very quickly.”

In contrast, Kelly gives the example of microservice-based marketplaces like Walmart, Target, and specifically, Best Buy US who pivoted to no-contact, curbside pickup within a week. 

He says, “That was crazy. They use microservices behind the scenes. Unfortunately, there are still a lot of retailers who don't support that to this day because it would require too many changes to their ecommerce platform. And, if you release into production once a quarter it's just not even worth it.”

2021: The power of differentiation & product selection

  • The next, emerging channel for omnichannel DTC and DNVB brands looking to scale is in wholesale B2B. And the best way to get started is to partner with and launch in differentiated, customer-centric marketplaces.
  • The next ecommerce business model to go mainstream will be the marketplace model, spearheaded by syndicates of brands who share similar values.
  • Get ready for your advertising costs to get even higher. The old guard of classic B2B retailers – B2B distributors – are starting to allocate their wholesale profits to experiment with DTC.

Horizontal marketplaces like Amazon thrive on resellers, private level brands, and now, Amazon-native brands still jostle for awareness alongside cheaper, unknown brands. As Joe puts it, “Most searches on Amazon are the perfect breeding ground for private label products. The products that Amazon selects as the first organic results plus those that bought ads are the ones who get bought – unmindful of the brand.”

To evolve beyond the 2020 fight for scraps and advertising space, a seller needs to differentiate their brand and products from the competition moving forward. 

Kelly thinks that big box retailers who offer price, convenience, and selection will continue to do well in 2021. Similarly, DTC marketplaces who offer unique customer experiences and product differentiation will gain customers as more and more consumers shop online. 

Kelly believes that members of retail’s middle class — those in the messy middle, with no clear brand identity and product differentiation — are the ones who will struggle to move forward. “There is this big bifurcation in retail. We're going to continue to see that you have to differentiate to thrive in this market. If you're well positioned with good digital experiences, you're going to be in great shape. But if you are just another boring, middle-of-the-road retailer selling other people's stuff with a markup in an undifferentiated way, you're heading for bankruptcy quickly.”

All experiences are not the same, especially in a competitive retail environment. Most brands can’t compete with Wal-mart and Amazon in a race to the bottom. Most are selling considered goods. They need to differentiate, not just the products themselves, but also the experience the customer has on their site.

Creating this experience is crucial, especially if the retailer sells $1,000 handbags and not $20 garlic presses. “If you're selling considered goods you have to create an emotionally engaging experience with your customers,” Kelly said. “This means you can’t use the same out of the box, cookie cutter, or drag and drop templates that everyone else uses. You can’t use the standard product grid that your customers are used to seeing.” 

Shopify’s Jordan Knapp agrees. “There's a great slide out there that shows the top 100 marketplaces based upon VC investment. The one thing they all share in common is they own their niche, whether it's a service marketplace, segment, or product.”

In addition to differentiation, Jordan believes that 2021 will see brands not only differentiating their brand and products, but also expanding their assortment and distributing value-added content.

The brands who win 2021, Jordan thinks, will be those who produce content, curation, and recommendations to their customers. “The 2021 trend is the rise of the specialized, curated, cultivated, or niche marketplaces. These are content-heavy sites operating in a vertical who maintain a degree of expertise within a specific category.”

Differentiation is essential, even if you’re elbowing for infinite shelf space amidst the first 48 search results on Amazon. Niche marketplaces differentiate not because they’re “not Amazon,” but because they look completely different. 

As Joe says, “Demand follows differentiation.” In fact, if their brand is unique and differentiated enough, they might not even need to jump through Amazon’s hoops and can spend all their energy maximizing the customer experience on their own site.

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