Since Amazon first came into our lives, we’ve been aware of the term ‘Marketplace’ being used for something far more than just an open square or location in the centre of our towns and villages where the public gather to buy and sell produce.
Today, marketplaces are e-Commerce websites that connect online customers to a broad range of products and sellers, all in one location. It’s their convenient nature that’s meant marketplaces have quickly become a consumer favourite and consequently, have exploded. In the UK, as well as Amazon, the best examples of pure marketplaces are eBay, ManoMano, Wayfair and OnBuy.
According to The Edge by Ascential, third-party online marketplaces will be the largest and fastest-growing retail channel globally over the next five years, accounting for as much as 59% of all global eCommerce by 2027.
Over the last 20 years, hardware retailers, builders’ merchants and suppliers in the Home and Garden Industry have had an interesting relationship with marketplaces. For a decade, they seemed more or less irrelevant to our industry, focusing on completely different categories, from books and CD’s to clothing, second hand products and homewares.
It’s only been in the last ten years that Amazon has seriously begun to turn its attention to the important categories that directly impact on our industry. Initially, it was down to the significant margin opportunity for Amazon, created by the fact that so many of the established retailers were making enviously high margins from the Home and Garden Categories.
As Amazon started to loom in the rear-view mirror, retailers and merchants began to get nervous, whilst suppliers were divided into two categories. The forward-thinking supplier businesses took the approach that if their end customers, whether consumers or tradespeople, wanted to buy their products and brands from a marketplace, then what right did they have to stop them?
The majority of businesses maintained their 100% wholesale only strategy and nailed their flags to the last of their traditional bricks’n’mortar customers, refusing to work or even engage directly with marketplaces.
As time passed, and when it became obvious that these brands were missing out on incremental sales and profit, they soon found alternative ways to take advantage of the rapidly growing channel and began by working with trusted partners or eCommerce retailers who understood how marketplaces operated.
Some went to the stage of launching new brands and even companies of their own, to exploit the opportunity, whilst trying to (often clumsily) disguise the fact they were selling through the marketplace channel.
Covid Unleashed Demand
And then Covid arrived, and just about everyone in the western world focused on improving their homes and gardens, and in the process spent hours searching online for products that had never been in such high demand. This online demand woke up many of the marketplaces to the true scale of the Home and Garden opportunity. This was partly down to the word search demand data generated by their businesses, which is reviewed on a regular basis. They can quickly and easily identify unfulfilled demand that arrives on their marketplace and use this data to take steps to meet it.
And yet at that time, the weight of the strategic challenge of marketplaces wasn’t just being felt by suppliers.
eCommerce businesses, as well as established retailers with a nationwide network of stores and even trade merchants, were beginning to feel the heat. Amazon had taught the UK population that when searching for and choosing products, the key factors to consider were choice, breadth of range, the selling price and how fast they could get it.
In 2021 as an experiment, I went onto Amazon and typed ‘Kitchen sink’ into search and the page told me that they had around 1,000 listings at that time on their marketplace. eBay had over 61,000 sinks and Wayfair 1,241. If you did the same experiment on DIY.com, the results told you that B&Q had just 78 kitchen sink products, whilst the other retailers had the following – Toolstation (132), Screwfix (109), Wickes (83), Homebase (25).
If the key levers of online retail were now Price, Range and Delivery, the established retailers at that time had a fairly bleak future.
If you can’t beat them, join them!
The stark and painful reality for many UK retailers in 2020, was that despite them being ‘so-called’ specialist Home & Garden retailers, compared to marketplaces, their range was small, they were generally uncompetitive on price, and they were unable to deliver the product anywhere near as quickly as Amazon Prime.
Under those circumstances and if you can’t beat them, what do you do? Yes, you got it, you join them.
It all started in a big way with Toolstation in 2020, who were persuaded to begin selling their products and ranges on eBay. It was a risk; it was a completely new channel to market for them and they had to work through the complicated challenges of retail pricing, drop shipping and delivery costs versus their own branches and website.
A year later and it worked, and it worked really well. Because their customers were all on account, it was easy to see if by selling on eBay, they were attracting completely new customers and as a result incremental sales and profitability.
The Cafe Table Analogy
I’ve spent time with the CEOs of a wide range of retailers over the last three years and in conversations with them, I often use the analogy of a café. If I’m sitting in a retailer’s café, I explain that the table we’re sitting at is their business, it’s their website and stores/branches and sitting around that table are their customers. Over the years, they continue to invest in their stores and website, basically ending up with a better, smarter table and continued high investment in Google brings some new customers to their table.
And then I point to all the other tables in the café and explain that all these other tables are the different marketplaces full of customers, millions of customers. Those customers are choosing to buy their Home Improvement and Gardening products from that marketplace (those tables) and yet, whatever the retailer in question does to improve their table, or try and attract them through investment in Google, due to either the customers marketplace or channel loyalty or maybe their age or the fact they don’t own a car, they are never, ever going to visit that retailers websites and never cross the threshold of one of their stores.
The only way to reach those incremental customers is to begin selling products on each of those marketplaces, which is exactly what Toolstation began to do. And here’s the thing, on-boarding and selling on the marketplace’s costs very little, with the commission only being paid when an actual sale is made. Incremental customers, sales and profit and all self-funding. And this argument didn’t just convince Toolstation, they were quickly followed by Wickes, Homebase, Ironmongery Direct, The Range, Wilko, and many others.
The B&Q Marketplace
Kingfisher and B&Q decided to take a very different approach to the marketplace opportunity. Rather than begin selling on other established marketplaces, they partnered with a business called Mirakl and launched their own marketplace, integrated within their existing website DIY.com. They weren’t the first in our industry to make this move, Leroy Merlin launched their European marketplace in December 2020 and at the time, their Director of Omnichannel was quoted as saying: – “The marketplace model will allow us to go well beyond the 60,000 products that we offer on average in our stores. By expanding our offer and improving the shopping experience, our objective is to strengthen and consolidate our position as the leading home improvement website.”
It’s a well-known fact within retail, that one of the easiest ways to increase revenue and profitability is to sell more to your existing customers. It’s more cost effective, they’re already loyal and choosing to shop from you and they’re often excited and interested when new products are offered, it’s the easiest option.
The B&Q marketplace went live in March 2022, initially providing customers with access to an additional 100,000 products, including an expanded selection of wallpaper, lighting, and power tools, as well as a new range of small domestic appliances. Eighteen months since launch, the results have been impressive.
Their marketplace now boasts over 700,000 products, across 23 categories, from 750 individual merchants/sellers.
In their half year results to 31st July 2023, B&Q’s total eCommerce sales (including marketplace) increased year on year by 18.5%, driven by the continued success of B&Q’s marketplace, with 30% of marketplace customers being completely new to DIY.com.
In the month of July 2023, marketplace delivered one third of B&Q’s total eCommerce sales, which in turn grew to 12% of their total company sales, compared to 11% for the same period in 2022/23 and just 5% in 2019/2020.
Are Marketplaces the Future of Retail?
Back to the title of this article – Are Marketplaces the future of Retail? With so many retailers and merchants realising that they can no longer solely rely on their stores, branches, and website to grow their business, marketplaces are looking like a very good and relatively easy way to access new customers and generate incremental sales and profit.
And if you decide not to do it, just be careful, as your competitors are probably already there.
Steve Collinge is an international speaker, influencer, retail commentator and executive editor of Insight DIY. You can follow Steve on LinkedIn and Twitter.
