Episode 18: As marketplaces thrive, brands who ignore them do so at their peril

Amie sits down with Daniel Hillyer, VP of Sales at Cymbio, to talk about the rise in popularity of marketplaces and third party sellers, and how brands that are slow to jump on board may be missing out. Recorded at Shoptalk Fall.

Transcript

Intro:

Coming up, on this episode of Retail Untangled…

Amie:

Welcome to Retail Untangled. My name is Amie Larter and this is the podcast where we speak to retail industry e xperts and find our business hacks to help you succeed. You won't find these gems anywhere else and we have some superb stories from the coal face as well as helicopter insights from retail industry leaders. This week we're bringing you insights live from Shop Talk Fall in Chicago.

Third party sellers have absolutely dominated digital commerce, capturing a staggering 57% of global sales in 20  23. It's not a stretch to say the growth is rapid, with marketplaces poised to become the largest and fastest growing retail channel by 2027, adding over 1.3 trillion in sales. Joining me today is Daniel Hillyer, Vice President of Sales at Cymbio. Daniel, thank you for being here.

Daniel:

Thank you for having me. 

Amie:

My pleasure. Daniel, marketplaces are experiencing rapid growth. What underlying shifts in consumer behaviour are driving this trend? 

Daniel:

Yeah, I think we see from two sides of the spectrum. see brands that have typically relied heavily on D2C, whether it be dot com or store, they're facing massive amounts of new competition and driving acquisition costs,  especially around social media channels like Facebook and Instagram and TikTok that just becomes more and more expensive to acquire and retain customers every year. 

On the flip side, we see a pretty big shift in the traditional wholesale model where brands that had relied on the annual buys from retailers are in flux. A lot of sales teams are struggling to match the same orders. Retailers are looking to de-risk a lot of their business by not necessarily making the bulk order and putting all the risk on themselves and having to manage the inventory and actually putting it back on the brand. I think that in a previous world five, 10 years ago where brands had  a lot more of the power, today it's shifted I think to more to the retailers. And so we have this dichotomy of challenges on the direct to consumer side and challenges on the traditional wholesale business. And with COVID came the explosion of this model of marketplace and dropship, which is a hybrid in between these two models. And we see this explosion almost every month. There's a new retailer that's opening a marketplace. 

There's literally hundreds of marketplaces around the world, think thousands at this point across lots of different verticals. 

Amie:

All right, and so it's no surprise that 77% of brand decision makers see marketplaces outpacing traditional wholesale. While the business case is strong, some brands hesitate or see growth stagnate early on. What are the main roadblocks that you've observed? 

Daniel:

I think one is the culture and the mentality of brands. I think it's very difficult for, we've seen this forever in retail, brands that have held on too long to traditional and antiquated tactics and have paid the price. And I think we still see this today. Brands that think that they shouldn't explore new means because their old ways are working good enough and they don't realise that they're losing market share and their consumers' behaviours are changing while they are idling behind. so for brands, I think it's just this cultural shift that they have to take to make big bets, plan for the future, align to shifting consumer trends. And we don't see that with all brands. Sometimes we do and sometimes we don't, but there are quite a few brands that you would think would be more innovative and they are opposed to change.

think that's one of the big challenges. The other challenge is the lack of understanding and knowledge about this space. I think that this space is shifting very quickly with channels like TikTok Shop and Shein that maybe a brand would have never considered a few years ago and now they have to consider because that is where their future shoppers are shopping and they're shopping in new ways. They're shopping via interactive video and not via the traditional way of, you know, coming to the store, interacting with their website. And so I think that they have to keep up to these trends. 

And it's not easy for them to understand. It's not easy for them to know where their consumers are today and where their future consumers are. So there's a big education. And I think the third thing is they don't know what's involved. To actually get this off the ground, what are the legal tax, operational, all the considerations that I have to consider as a brand to be able to sell in this new model and I think again there's a lack of education and preparation that needs to take place and a lot of these brands need help from and expertise from other brands or technology vendors that have been in this space for a while. 

Amie:

All right. So getting it off the ground sounds hard, but there's a significant opportunity cost for not being on this channel. Do you want to paint me a picture of what that opportunity really is for third party sellers? And maybe then we wrap up with what happens if you're not there, if you're not meeting people where they are at?

Daniel:

When we speak to brands, we see the opportunity is typically threefold. First is they're looking to elevate their brand, whether that be reach different audiences and change the perception of their brand or elevate their brand to be able to charge higher prices. And the best way for brands to do that is to associate themselves with specific retailers, whether that be a luxury marketplace or a marketplace that is more associated with Gen Z audiences like a TikTok shop.

And so a lot of brands have a focus around how do they change their perception, how do they really get their consumers to view them differently than they do today. That's one of the first opportunities. The second opportunity is brands are struggling right now, retailers are struggling right now, how do they find additional sources of revenue? And so they're, like I talked about earlier, maybe their DTC business is facing a decline, maybe their wholesale businesses is facing a decline, how do they generate additional revenue? And it's not that easy to do. Closing an entirely new wholesale deal can take you 12, 18, 24 months. Pouring in a bunch of additional mo ney into DTC is going to significantly hurt your profits. And so a relatively quick way to start generating money is through marketplaces. There's not an exceptionally difficult lift. You're using inventory that you already have. You don't have to ship products at bulk. It's a very unique opportunity for brands to quickly access additional revenue channels.

Daniel:

And the third piece is back to that wholesale piece. Ultimately, wholesale is where many brands want to be because it's a predictable revenue stream and even though the margins may be lower than DTC or for marketplace, the predictability and the cash flow is super important. And it's not easy, especially for some of these tier two or three brands, to have large wholesale deals with top retailers and a way to prove to retailers that you're worthy, that there's demand, that you align with their customer base is to show it through proof. 

And the best way to do that is through marketplace and dropship. And so a lot of retailers are more open to taking on new brands to test sales through marketplace and dropship and seeing certain skews and certain assortments and categories that perform better. They're much more likely to take a big buy the next year in wholesale. 

Amie:

That makes sense. And so what do you think the you know, opportunity cost is for those that aren't involved in marketplaces right now?

Daniel:

 I think they're going to feel the pain in the next few years. think as I mentioned consumer trends are changing and people are buying drastically different than they did before. They're suddenly going to be faced with potentially an ageing population that is not...they're not necessarily buying in the same pace and they're not reaching younger audiences. And I think that the opportunity cost is the growth and future growth of your brand by reaching future audiences and relevant audiences. Nobody wants to become the brand that is no longer cool and is no longer in trend. And I think the key to being perceived as a hot brand and interesting and sexy brand is to be aligned with the best and hottest places and that shifts. Whether it's today TikTok Shop or Nordstrom or Saks or Farfetch or Ux, whatever the case is, but the ability to quickly adapt and sell in different marketplaces and the speed to be able to do that will help brands to stay relevant to be perceived as being attractive brands. 

Amie:

Yeah, makes sense. And what are some brands that you see as, you know, leading the way in terms of marketplace strategy? 

Daniel:

We see a lot of brands in the sort of premium, contemporary and luxury space really double down here. I think there are brands like, and also in the footwear space as well, so brands like New Balance and Camper have really doubled down in the space and have seen their global footprint, especially for some of them that are already very well known, but their footprint has grown significantly. It's also a way for them to ensure that they have inventory in certain markets by backfilling with Dropship. And in the luxury space, brands like Cynthia Rowley, brands like Balmain are staying relevant to their audiences and reaching new audiences by selling on new marketplaces globally. 

Amie:

Excellent. And so on the flip side of that, when we go to, you've given us some best practice. Now for those that are considering, you know, moving into marketplaces, they're not necessarily there right now. You said it doesn't need to be so hard. It sounds hard to me, but you obviously know way better than I do.

What are some of the considerations both prior and leading into making that decision? 

Daniel:

So first you have to understand where does your inventory sit? Certain retailers have requirements around, actually all retailers have SLAs and requirements around shipping and returns and they need to be compliant with those. And so many retailers will allow you to ship internationally but it may be more difficult for a brand or may be financially, won't make as much sense financially to be shipping across the world to a consumer in the United States or Australia. 

So one is where does your inventory sit? Do you have the right 3PL solutions to enable that? Whether that's returns, Nordstrom who requires the US address, for example, to return items and many brands don't necessarily know the intricacies of logistics and requirements of these retailers. So one is understanding what are the requirements and inventory and shipping and logistics to support that. 

Two is, most brands don't understand the complexity of an operational complexity of selling on third party channels, whether that's adjusting their product content and images to fit the requirements of every single retailer. Every single retailer actually has different requirements. They have different taxonomy. That taxonomy changes frequently. And so it may seem super obvious or easy for a brand to just take their existing catalogue from Shopify and push that to a specific retailer, when in fact they're going to be faced with weeks or months of manual gruelling work of adjusting their product content and images to the requirements of a retailer. They're ultimately going to face lots of errors and just spend a lot of time trying to resolve those things. 

So, I think from an operational perspective, you're going to need to probably hire at least one or two people to manage that if you're really investing in this channel, which is not necessarily, that's a big cost, right? And I think a lot of brands are today looking to drive efficiency and not necessarily hire, especially when the work is very tedious manual Excel-based work. And so, you know, the world of automation and AI is very clear here and finding a solution that can automate all this work, replace the very mundane tasks, let's call it, of uploading product content, manually updating inventory and pricing and orders and returns. It's just not where businesses should be focused. There's a lot of strategic decisions and key challenges that they need to be facing and this type of work should be left to technology. 

Amie:

Makes sense. So how can sellers choose the right marketplace for their products and target audience? Is less is more approach, you tell me.

Daniel:

There's a few schools of thought here and we see brands that are in the luxury space suddenly consider how do we reach a much wider audience even if it comes a bit at the expense of our brand integrity and pricing. And on the flip side we see brands that are really not focused on reach and just about brand perception so even if they don't drive millions of dollars of sales of being placed next to some of the leading luxury brands or leading brands is what's key to them. 

And so there are the Amazon, TikTok, Sheins that have literally hundreds of millions of users. And then there are the much more curated marketplaces, the Saxes and the Nordstroms, the Farfetch'd that are more about brand and more about the brand perception and pricing and integrity there. So I think those are generally the two schools and you'd be surprised, you know, Gucci is selling on Amazon and on the flip side there are luxury brands or there are more mainstream brands that are now looking to sell on more of the curated and luxury marketplaces. 

So that whole area is a bit in flux and interesting to see that the previously thought luxury brands are rethinking reach and the much more mainstream, lower price brands are trying to elevate and really focus on brand perception and the key areas that they want to be placed. 

Amie:

Interesting. So a little bit of watch this space. Definitely. Okay, so to wrap it up in a little bit of a future forward thinking question, where do you see this space heading in the next couple of years? 

Daniel:

Well, every few months, I think I mentioned previously, we're seeing new marketplaces pop up, whether it's Nordstrom's marketplace, which has been wildly successful in April that was launched or ASOS's US launch and you know, Shein has taken over the world and this space will rapidly change. I think again because of the ease of onboarding new brands and some of these retailers can onboard hundreds of brands in a matter of a few months where traditionally that would be years and so I think that you're going to see a lot more marketplaces popping up. I think you're also going to see the shift from dropship to marketplace take place. We're seeing a lot of the retailers abandon the older school, let's say the whole dropship word has a bit of a negative connotation. And I think a lot of the retailers have realised that marketplace is the future. They're very similar and it's mostly a difference in commercial terms.

We're going to see a lot more marketplaces, fewer dropship. I think a lot of old school traditional department stores are going to be doubling down here. And I think that currently the whole space is in flux. It's a difficult time for lot of brands. 

Every brand and every retailer should be, if they're not already thinking about diversification. You can't put all of your eggs in one basket. You can't base your entire growth on D2C or brick and mortar or wholesale. It has to be a combination. And I think that's why we're going to see Marketplace continue to grow, because ultimately brands have to rely on every channel that will allow them to improve their brand perception and increase sales.

Outro:

A big thank you to Daniel Hillyer from Cymbio for joining us on this episode of Retail Untangled. If you've enjoyed listening feel free to like and subscribe to Retail Untangled on your favourite podcast platform.