DEEP DIVE: Online Marketplaces - Coresight Research · Online marketplaces disrupt the traditional retail model by ... core. Sites such as Taobao, Tmall, Flipkart and Snapdeal dominate
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D E B O R A H W EI N S W I G M a n a g i n g D i r e c t o r ,
F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m
U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9
C N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6
This report looks at online marketplaces, which bypassretailerstolinkbuyersandsellers.Thesecompaniescomprisea high-growth and fast-developing segmentwithin the retaillandscape:
1) The top three: Alibaba Group’s Taobao is the world’slargestconsumer-to-consumer(C2C)marketplace,sellingUS$295 billion of goods in 2015. Tmall (also AlibabaGroup) is the biggest business-to-consumer (B2C)marketplace, with US$191 billion in sales 2015. eBay isthe third-biggest marketplace, based on 2015 grossmerchandisevolume(GMV)ofUS$78billion.
2) Third-party sellers gaining traction: We estimate thatthird-party sellers onAmazon sold aroundUS$69 billionworth of goods in 2015.We forecast that Amazon willovertake eBay this year in terms of annual globalmarketplace sales. Additionally, Amazon looks likely tobecome amajoritymarketplace this year, as third-partysellers are expected to sell more units on its site thanAmazondoesitself.
3) Retailmarketplaces:IntheUS,Walmartisrampingupitsmarketplacebyrecruitingnewsellers,buyingJet.comandinvesting in JD.com. In Europe, Zalando has launched amarketplacemodelforbigfashionbrandsandhasstartedofferingfulfilmentonbehalfofitsthird-partysellers.
EXECUTIVESUMMARYThisreportlooksattheonlinemarketplacemodel,withafocusonrecentdevelopments,andtheadvantages ithasovertraditional,directretailing.Online marketplaces disrupt the traditional retail model by replacing itwithamoredirectrelationshipbetweenbuyerandseller.Similartootherdisruptors, such as Airbnb,Uber and Facebook,marketplaces aremerelyplatformproviders.
1) Directretailing:Inthemidtolate1990s,e-commerceintheUSandWestern Europe was dominated by direct retailing. The majorexceptiontothiswaseBay,whichwasthedominantmarketplaceinWesterncountries.
2) Marketplacemodel: Subsequently, inAsianmarkets suchasChinaandIndia,e-commerceemergedwiththemarketplacemodelatitscore. Sites such as Taobao, Tmall, Flipkart and Snapdeal dominateonlineretailthere.
3) Marketplace growth: Now, in the US and Europe, we are seeingmarketplaces grow substantially, both in number and sales, as bignamessuchasWalmartandZalandopilein.
Source:Shutterstock
AlibabaGroup’sTaobaoistheworld’slargestconsumer-to-consumer(C2C)marketplace,withUS$295billionin2015grossmerchandisevolume(GMV—thetotalvalueofgoodssold).Tmall (alsoAlibabaGroup) isthebiggestbusiness-to-consumer (B2C) marketplace, with US$191 billion GMV in2015.eBayisthethird-biggestmarketplace,basedon2015GMVofUS$78billion.
This year,Amazon looks likely tobecomea “majority”marketplace,withthird-partysellersexpectedtosellmoreunitsonitssitethanAmazondoesitself, and,byourestimates, it is set toovertakeeBay in termsof globalmarketplaceGMV.
Walmartisrampingupitsmarketplacebybringingnewsellersonboard;ithas also acquired Jet.com and made investments in JD.com.Walmart isreportedly also looking into investing in Flipkart. In Europe, Zalando haslaunched a marketplace model for big fashion brands, and has startedofferingfulfilmentonbehalfofitsthird-partysellers.
2) No inventory risks: Marketplaces are protected from the risksassociatedwithowningstock.
3) Greaterchoiceboostscustomersatisfaction:Shoppersareless likelytowalkawayunsatisfied,as the long tailofproductdemandcanbesatisfied at little effort to the retailer, in turn building loyalty andrepeatvisits.
MARKETPLACES:DISINTERMEDIATINGRETAILMarketplacesareonepartofthewaveofindustrydisruptorsthatincludesnames such as Airbnb, Uber and Facebook. Similar to these firms, sitessuch as eBay, Tmall and Amazon’s marketplaces are purely platform-providersthatenableothercompaniestoprovidegoodsorservices;theydonotprovideanythingtangiblethemselves.
Asset-lightandinventory-less,marketplacesarenotretailers; infact,theycutoutretailers,whoholdinventory,curateproductandaddamarkup,infavor of a more direct relationship between shoppers and brands,manufacturers or other sellers. Marketplaces therefore disintermediatetheshoppingprocess—atleasttoanextent,givenconsumersstillinteractwiththemarketplaceasasubstituteforaretailer.
We identify three phases in the development ofmarketplaces, from thesomewhat peripheral position of these sites in the first wave of e-commerce inWestern countries to theexplosion inmarketplacesweareseeingtoday.
Figure1.EvolutionofE-CommerceandMarketplaces
Source:FungGlobalRetail&Technology
ArecenttrendistheemergenceofmarketplacesintheUSandEuropethatfocus on offering brands a showcase to sell new product, rather thanallowing small-scale sellers a chance to offload their unwantedpossessions. The charge into themarketplaces segment by retailers thatpreviously focused on an inventory model is bolstering this diversity:AmazonandWalmartareamongthenamesfromtheretailworldthatarerampinguptheirmarketplaceofferings.
In this report,we focus our comparisons on fivemajor or emerging B2CandC2Cmarketplacesites:Amazon,eBay,Tmall (includingTmallGlobal),WalmartandZalando.Thefollowingsectionsofthisreportconsider:
WebeginbyrankingmajorB2CandC2CmarketplacesbyGMV—which isthe totalvalueofall thegoods thatareagreed tobesold.GMVtypicallydoesnot factor inproducts that are returned for refundsor transactionsthatarenevercompletedbecauseofcancellation.
Source:Shutterstock
Herearesomekeytakeaways:
• Amazon’smarketplaceGMVisrapidlyapproachingthatofeBay,weestimate. We expect Amazon marketplace to leapfrog eBay inmarketplace GMV this year, based on the trajectories of the twocompanies.
• JD.com is much smaller than its Chinese rivals Taobao and Tmall,whicharebothownedbyAlibabaGroup.
• In India, Flipkart iswell aheadof Snapdeal and it is growingmuchfaster. The still-small scale of these players relative to peers fromothercountriessuggestsmuchscopeforgrowth.
WehavenodataonGMVforWalmart,whichrampedupitsmarketplacethis year, or Zalando, whichmoved into themarketplace format only in2015. Jet.com,which launchedonly in July 2015, had aGMV run-rate ofUS$1.2billionasatAugust2016,accordingtoitsnewparent,Walmart.
Amazon Individualsandsmallandlargebusinesses.FulfilledbyAmazonenables businesses to sell without having to process, hold ordispatchinventorythemselves.
Zalando Selected large fashion brands. Fulfillment by Zalando enablesbusinesses to sellwithout having to process, hold or dispatchinventorythemselves.
Source:Companyreports
Long-established eBay has a head start in seller numbers. However,becausesomemarketplacesfocusonlyonbrandsandretailersandnotonindividualsellers,thecomparisonisnotalwaysonalike-for-likebasis.
Walmart’sSeniorVicePresidentofGlobalMarketplace,SethBeal,statedthecompanyisaimingtohave1,000merchantsonitsmarketplacebeforethe end of 2016. However, press reports indicate the company hadalreadyreachedthistargetbytheendofSeptember2016.
Thefiguresbelowaregenerallythoseprovidedbythecompaniesontheirrespective websites. We expect that major sellers, such as big-namebrands, strike theirowndealswithmarketplaces,and that theseoperateondifferentfeescales.
• Amazon has begun allowing goods shipped directly from somethird-party sellers tobeeligible for its Primeexpedited,no-chargeshipping program. Previously, only goods shipped by Amazon(whethersoldbyAmazonorbythird-partysellers)wereeligible.
• At the same time, the proportion of Amazon marketplace ordersthatarefulfilledbyAmazonisgrowing.Attheendof2015,Amazonsaid it was fulfilling nearly half of all third-party sales, up from“morethan40%”attheendof2014.
• Big-name brands are pushing onto marketplaces such as Zalandoand Tmall Global which focus on providing dedicated shopfronts,andsoofferbrand-buildingopportunities.
• Amazon is crackingdownoncounterfeitswithnew“brandgating”feesandrestrictionsonselectedbrands.Sellersofselectedbrandsmustprovideinvoicesfrommanufacturersordistributors,andpayanonrefundablefeeofUS$1,500perbrand.
• Brands such as Birkenstock are becoming nervous about allowingtheirbrandsontoAmazon,due tocounterfeiting. Inasimilarvein,some major brands are reported to limit the range of productsofferedonWalmart,toprotecttheirbrandimageinaprice-focusedoffering.
Competitionheatsup:
• Walmartlauncheditsmarketplacein2009,buthasbeengrowingitssellernumbersveryrapidlythisyearasitfocusesoncompetingwithAmazon. As a result, around onemillion SKUs are being added totheWalmartwebsitepermonth.
• Walmart’s acquisition of Jet.com brought the latter’s 14.8 millionproductlistings,210millionuniquevisitorsandUS$1.2billionGMVrun-ratetoWalmart.WalmarthasalsomadeinvestmentsinJD.comin China, taking its stake to around 10.8%. And it has reportedlybeen in talks about investing in Flipkart in India. Thesemoves arefurtherbolsteringitsexposuretothemarketplacesegment.
• FacebooklauncheditsmarketplaceonOctober3.Themarketplaceuses geo-location to show local ads, is currently only in theFacebookapp,andisfocusedfirmlyonC2Ctransactions.
AmajortrendisAmazon’sgradualshiftfromaninventory-basedmodeltoamarketplaceone.Weareonthebrinkofseeingitsthird-partysellerssellmoreunits thanAmazon itself does. In the thirdquarterof 2016,half oftotalunitssoldweresoldbythird-partysellers.
According to a survey by financial services firm RW Baird in the thirdquarterof2015, the shareofproductsofferedbymarketplace sellersonAmazonwasashighas90% incategoriessuchaspatio, lawnandgardenproducts,and89%inappliances.
AdvantagesOverDirectRetailingWeidentifyfourkeybenefitstothemarketplacemodelversustraditionalretailing:1)gainstoprofitmargins;2)fewerrisksassociatedwithholdinginventory; 3) satisfying consumers through wider choice; and 4) greaterflexibilityinenteringnewmarkets.
1.MarginGains
Themarketplacemodel is highlyprofitable, because the sites can chargedouble-digitcommissionsforsimplyactingasaportal.
Amazon typically takesa cutof15%of the sellingpriceonproducts soldthrough itsmarketplace, although fees varyby category, and range from7% on computers and large appliances to 45% on Amazon deviceaccessories;andAmazonislikelytostrikebespokedealswithmajorbrandsthatwanttosellonitssite.This15%averageisasubstantialmargin,givenAmazon’s only obligations are to showcase the product on its site and
process the payment. This compares to a 2.1% overall EBIT margin atAmazon.cominfiscal2015.
Forthose itemsfulfilledbyAmazon,thecompanychargesadditional feesfor holding, processing and mailing products out to customers. Amazonreportedlyleviesanextra8-15%feeforordersthatitfulfils.
Similarly, Zalando has signaled margin benefits from its nascentmarketplace model. In the first half of fiscal 2016, the company notedgross-marginbenefits from itsgrowingBrandPartnersprogram,althoughithasnotpublishedanyspecifics.
For those sites that both retail directly and offer amarketplace (such asAmazonor Zalando), thebenefit in termsof theproposition is enhancedproduct choice. Shoppers are less likely towalk away unsatisfied, as thelongtailofproductdemandcanbesatisfiedatlittleefforttotheretailer,inturnbuildingloyaltyandrepeatvisits.
Moreover,eveniftheretailsideoftheoperationlosesasaleofaproductto a third-party seller, the generousmargin yielded from that is likely tomorethanmakeupforthelossofthesale.
Marketplaces are growing their offerings to provide ultimate choice.Walmart says it is adding one million SKUs per month online, largely
Amarketplacemodel offers an asset-light way of entering new regionalmarkets.WhenAmazonentered India in2013, itdid so throughapurelymarketplace mode. This was due to the country’s prohibition of foreigndirectinvestmentine-commerce.AmazoncircumventstheFDIrestrictionsby selling on its own website through a joint-venture company withCatamaranVentures,calledCloudtailIndia.
KeyTakeaways• The marketplace format has established itself as the default
e-commerce format in fast-growing, nascent markets. It is nowseeingaboominmature,Westerne-commercemarketssuchastheUSandWesternEurope.
• Epitomizing this growth is the shift at Amazon, which this year islikelytobecomeamajoritymarketplacebyshareofunitssold,andwhichissettoovertakeeBayintermsofmarketplaceGMV,byourestimations.
• Theasset-lightmarketplacemodelbestowsanumberofadvantagesover direct retailing, including strongmargins and the absence ofinventoryrisk.
Mar11,2015 Launches Amazon Exclusives new store tomake Amazon the destination for brands and innovators tolaunchandselltheirexclusiveproducts.SellersonExclusivecanonlyselltheirproductsonAmazonandontheirownwebsitesandintheirownphysicalstores.
Aug04,2016 Completes the acquisition of Ticketbis, an international ticket marketplace with a presence in 48countries,toprovideagreateraccessandchoiceinticketingforStubHubcustomers.
Oct22,2015 Ocean Spray Launches first online flagship store in China on Tmall Global. The company is a renownedAmericanagriculturalcooperativeofcranberryandgrapefruitfarmers.
Sep01,2015 Launches “Tmall VineyardDirect” program through theopeningof theRobertMondaviwines exclusiveflagshipstoreonTmall.com.
Jul30,2015 Announces partnerships with one of South Korea’s top duty-free chains, The Shilla Duty Free, andThailand’sleadingduty-freechain,KingPower,toenhancetheduty-freeshoppingexperienceforChinesetravelerstothesetwocountries.
Jul08,2015 Announces strategic investment inMei.com,which is aChina’s leading flash salesplatform for luxury andfashionproducts.
Jun24,2015 Announces an expansion of its cross-border e-commerce initiatives, including the launch of 11 officialcountrypavilionsonitsTmallGlobalplatformandcooperativepartnershipsbetweenJuhuasuan,Alibaba’sgroup-buyingplatform,and26foreignembassiesinChina.
Aug23,2016 Cloud-based inventory management service Commercehub reaches an agreement for integrating withWalmart’smarketplace.SimilarpartnershipsarealsoagreedwithSolidCommerceand4Psite.
Aug18,2016 In its 2Q17 results, Walmart states that it has added around 7 million extra items to its marketplaceassortmentsincethestartoftheyear.TotalSKUcount,includingfirst-partyitems,isputatapproximately15million.
Aug8,2016 Walmart acquires one-year-old marketplace Jet.com for US$3.3 billion. Jet.com will remain a distinctbrand.Atthetimeoftheacquisition,JetwasseeingaGMVrun-rateofUS$1billion;itoffered12millionSKUsinitsfirstyear.
May19,2016 In its 1Q17 results,Walmart states that the SKUs onWalmart.comhave reach 10million and that it isgrowingthisnumberthroughamixoffirst-partyandthird-partyitems.
Apr12,2016 Walmart agrees to work with cloud-based e-commerce solutions provider ChannelAdvisor to integratewith Walmart’s marketplace. ChannelAdvisor will facilitate retailers and brands listing products onWalmart.comandoptimizetheirmerchandisesales.