Online marketplaces – the future of retail?

Tofugear recently conducted a survey among 150 retailers in Asia and found that 70% of retailers that have ecommerce operations also utilise online marketplaces. This finding is perhaps not so surprising given the wide range of options available to retailers in Asia from leading Chinese platforms such as Tmall.com and JD.com to Southeast Asian marketplaces like Shopee and Lazada.

 

Tapping into a large audience

But why are retailers choosing to incorporate online marketplaces into their ecommerce strategies?

Above all it is the ability to tap into a large audience and gain high brand exposure without having to resort to heavy digital marketing. Particularly for markets such as China, platforms like Tmall take a large share of overall online spending and – crucially – they are also trusted by consumers.

The second major reason why retailers are opting for marketplaces is to offer convenience to consumers. Shoppers can find anything they need under one roof and there is also often the ability to consolidate shipments.

The fact that just 20% of retailers said that they trade on marketplaces as a cheaper alternative to setting up their own ecommerce site also speaks volumes: online marketplaces are predominately used alongside exiting ecommerce sites.

Another striking finding is that only a quarter are using marketplaces to expand internationally. It is therefore not necessarily the case that retailers are turning to these platforms to move into new markets.

 

 

Cost considerations

Online marketplaces require substantial investment that makes it much more challenging for retailers from a profitability point of view.

As an example, anyone trading on Tmall will pay deposits, technology and service fees, sales commissions, customer loyalty programme fees and Alipay fees. That quickly adds up and eats away at valuable profit margin.

An added challenge for retailers is that despite having entered into partnerships with these platforms, they may not necessary appear at the top of search results, which is generally ranked by best sellers. So a brand owner could find itself lower on the list than a third party retailer that acquired stock through the wholesale route.

 

Which retailers are opting for marketplaces?

Tofugear’s survey revealed that Tmall was the most popular platform among retailers that have a marketplace strategy, with nearly half using the Alibaba-owned platform. Focusing in on the US brands that are partnering with Tmall, there is a real mix of brands from automotive (Tesla and Ford) to watches (Fossil) and fast fashion (Gap).

What is also noteworthy is that a number of underperforming brands have actually used their partnership with Tmall to turn their fortunes around.

Faced with slowing sales in North America, retailers including Abercrombie & Fitch, Guess? and Ralph Lauren have found renewed momentum by achieving growth in China. This is growth that they would not have been able to achieve by establishing their own first-party ecommerce platforms.

With platforms becoming more sophisticated – for instance through the introduction of more experiential features such as videos, livestreaming, virtual reality and gamification – it stands to reason that online marketplaces will become a more critical component of Asian retailers’ ecommerce strategies over the years ahead.

US brands that partner with Tmall:

  • Target
  • Macy’s
  • Estée Lauder
  • PVH (Calvin Klein/Tommy Hilfiger)
  • Abercrombie & Fitch
  • Costco
  • Nike
  • Gap
  • Guess?
  • Ralph Lauren
  • Ford
  • Tesla
  • Starbucks
  • Mattel
  • Fossil

The statistics in this analysis were taken from the 2018 Asia Digital Transformation Report. Click here to download the full report