Why are retailers launching online marketplaces?

Halfords this week launched an online marketplace, partnering with 30 approved companies to expand its range of bike and car accessories online. But why are retailers trying to become the next Amazon or Alibaba by sending their customers to third-party sellers?

Halfords said the marketplace will allow it to anticipate and react to trends and consumer buying behaviour, while testing the market with new brands in real time.

Halfords marketplace trading manager Nina Morris, said: “This launch means we can react faster than ever to the needs of our customers, with more choice and access to more brands. Our sector-leading innovation also means we will be able to target new customers who may not have shopped with Halfords before.

“We know our existing customer is really digitally engaged – Halfords.com had 90 million visits last year and 25% of all bike sales were made online. Marketplace is a huge opportunity for us to innovate in the sector and offer a wider range."

Halfords’ online sales reached £100 million for the first time in the last financial year, and with its plans to expand its SKU range to 40,000 with its new marketplace, the retailer hopes this will continue online growth momentum.

So much choice

Mirakl is behind the Halfords marketplace, and this week the French eCommerce supplier secured $20 million of funding to expand in America.

The vendor – which also provides its solution for retailers such as Game, Darty and Best Buy – sees the US as a key market for growth.

And it might be right, earlier this week the US witnessed the launch of another marketplace called Jet.com which raised $255 million before launch and claims its partner prices are 10-15% cheaper than elsewhere online.

Andy Mulcahy, spokesperson at e-tail trade body IMRG, said historically marketplaces have gained popularity with consumers because they provide so much choice at the click of a button.

“A key to the success of marketplaces such as Amazon has been in creating the impression that ‘you can get anything on their site’ which, from the perspective of a shopper, means having all that choice concentrated within a single platform – offering clear convenient benefits as they only have to register once to buy from multiple retailers and know that the overall experience will be consistent each time,” he said.

Laurel Bowden from 83North, who led the funding round for Mirakl, added: "Online marketplaces are everywhere, driving multichannel retail and offering a greater scope for expansion combined with higher profit growth and lower risk. We are getting ever closer to a time where every sector, be it art, professional services or travel, will be utilising online marketplaces.”

But why are online marketplaces now gaining popularity with retailers?

Winning the Amazon battle

Adrien Nussenbaum, co-founder of Mirakl, said his retail clients are implementing marketplaces as a way of combating lost market share due to online competition.

Retailers are seeing their traditional eCommerce offerings being negatively affected by the likes of Amazon and Alibaba, so launching their own marketplace is one way to compete on a fair playing field, he suggested.

It also provides retailers the ability to offer more products and, in some cases, products which are cheaper for the customer and more profitable for the retailer.

"Retailers are in very competitive markets where price is driving the market," he said.

Nussenbaum used electronics retailers as an example of businesses who often lose money on low-margin products. "They're better off leveraging their traffic and taking a 10% commission on a sale [through their own marketplace],” he added.

But not many traditional retailers have launched marketplaces. Nussenbaum suggested the strategic decision to launch a marketplace tends to come from the owners of the business who are often concerned about negative implications.

"They don't always use the word 'marketplace', sometimes they call it a 'range extension' or 'online concessions' because they see the word 'marketplace' and think they are going to lose control over their range," he explained.

Darty's story

French electronics retailer Darty was one such company which was sceptical about online marketplaces. CEO Regis Schultz told Essential Retail: "Darty is one of the few French retailers to be as successful online as it is in its bricks and mortar stores and a marketplace did not fit with our overall strategy. I thought it was a gimmick, a fad that would pass over time."

Darty's internal management team initially objected to the idea of a marketplace, feeling it was providing a platform for its competition.

"But I began to learn about what could be achieved," he said. "It will also keep customers on your website, so creates a perfect, virtual circle for the retailer.”

Schultz explained that the online marketplace was a natural evolution of the retail model. Darty – which has 224 physical stores – also partnered with Mirakl to deliver its online marketplace, and Schultz said it was able to show customers Darty's goods which include service costs, compared to other third-party products which do not.

"Including service made us look more expensive than the competition, even though that wasn’t the case," noted Schultz. "But a marketplace allows us to explain pricing more clearly, allowing consumers to compare like-for-like.

"Finally, in electrical retailing especially, there can be issues with availability. An online marketplace of complementary products ensures far greater product availability, and therefore service to customers.”