If you had to pick a golden rule for retail, one of the top candidates would be “follow the customer”. This is the phrase retailers use when they explain why they’re advertising on social media, offering free same-day shipping or phasing out single-use plastic.

Where and how customers want to shop dictates where and how retailers sell their products. It’s a pretty simple equation, and it’s also the reason behind one of the biggest trends in ecommerce right now: the rise of online marketplaces.

Ten years ago, marketplaces like Amazon and eBay accounted for US$290 billion, or 17 per cent, of global digital commerce sales, according to Euromonitor. In 2017, that figure was US$567 billion, or 41 per cent. In the luxury space, marketplace sales are growing twice as fast as monobrand website sales, according to a 2018 report by McKinsey. Meanwhile, Forrester has predicted that 66 per cent of all online retail spending will occur on marketplaces by 2022.

Why are Australian customers flocking to marketplaces? The biggest platforms – like Amazon and eBay – are able to offer an unrivalled level of easy one-stop-shopping.

Need to stock up on toilet paper and buy some new running shoes and headphones? No problem.

You can purchase everything in one transaction on a marketplace – it’s probably cheaper and will be delivered the next day.

In a 2018 global consumer survey by Nielsen, 71 per cent of Australian respondents said marketplaces give consumers more options and 58 per cent said they increase competition between businesses.

As marketplaces have gained traction with consumers, they have also attracted more and bigger brands to their platforms, such as Burberry and Nike, which both currently sell through Amazon in the US. While many such brands initially resisted marketplaces due to concerns about brand positioning and loss of control over the customer experience, they ultimately chose to “follow the customer”.

Hidden challenges

At the same time, brands and retailers have more platforms to choose from, as new marketplaces pop up to capitalise on the trend. Besides global giants like Amazon, eBay, JD.com and Alibaba’s Taobao and Tmall, there are niche players that are turning over significant sums, such as fashion site The Iconic, gifting destination Hardtofind and ethically-made goods site Ethi.

There are also new offerings from retailers that view marketplaces as a way to expand their range without the risk of holding inventory. Myer and Catch both did this in 2017 to varying degrees of success.

But increasingly, it seems brands and retailers are not selecting one or two marketplaces; rather they’re opting to sell through multiple sites, in addition to their own ecommerce and bricks-and-mortar stores and wholesale and concession partnerships.

On the surface, this might appear to be a scattergun approach, but in fact, it is based on the same simple logic that has guided retailers online, onto social media, and now, onto marketplaces: “follow the customer”.

But while selling through multiple marketplaces might be good for customers (by giving them more choice), and for brands and retailers (by increasing their reach), the practicalities of doing so are punishing.

Basil Karam, chief executive of Life Interiors, knows this all too well, having started his furniture and homewares business on eBay before expanding into standalone ecommerce and bricks-and-mortar stores.

“There are many hidden challenges to selling through marketplaces,” warns Karam. “While it’s relatively straightforward to sell through a single well-supported channel like eBay [or] Amazon, especially if you’re an online-only business…a more robust multi-channel strategy requires technicalsophistication.”

Different requirements

Life Interiors currently sells through eBay and Catch, as well as category-specific marketplaces, including Temple & Webster, Zanui and House of Home, and is considering joining Amazon in 2019.

According to Karam, one of the biggest challenges he faces is simply uploading all the relevant product information and images according to the specific requirements of each marketplace.

“That’s definitely a major challenge. There are some marketplaces that don’t necessarily have click-and-install integrations like eBay and Amazon, so orchestrating the inventory across those channels has been technically quite complicated,” he says.

While various service providers offer integration software to simplify this process, it still requires significant investment in the underlying infrastructure, especially at the very beginning.

Life Interiors has developed what it calls a “hub-and-spoke” architecture with Oracle NetSuite at the core and Zendesk powering a unified customer experience across all sales channels. This setup gives the retailer a single view of its inventory, which is crucial to avoid selling items that are out-of-stock and to fulfil orders efficiently.

“You’re sacrificing anywhere from 10 per cent to 30 per cent of margin [depending on the marketplace],” Karam points out, “so you really need an efficient supply chain and fulfilment process to extract the value out of those marketplaces.”

Good systems and data are even more important when it comes to fulfilment, since many marketplaces now have their own fulfilment services and strongly encourage sellers to use them. On Amazon, for example, products are only eligible for Amazon Prime if the seller uses Fulfilment by Amazon (FBA).

While such policies are intended to create a more consistent customer experience, they could very well lead to sellers needing to manage a different fulfilment process for each marketplace they sell through.

Law of diminishing returns

Crumpler chief executive Adam Wilkinson says logistics and warehousing is the biggest challenge he faces in the backpack and luggage brand’s burgeoning marketplace business.

“Do we partner with a third-party logistics provider; do we work directly with a marketplace? It often comes down to a commercial decisions,” Wilkinson says.

“When it comes to a marketplace like JD.com in Indonesia, we’ll use their warehousing and freight forwarding because it’s such a difficult market to bring your products into and we do the same with Amazon in the US,” he explains.

“We’ll use FBA purely so we can offer shipping through Amazon Prime.”

Crumpler has seriously ramped up its marketplace strategy over the past year, and now sells through Amazon, The Iconic and Qantas in Australia, Alibaba’s Tmall in China, JD.com and Lazada elsewhere in Asia, Zalando in Europe and Amazon in the US. At the same time, Wilkinson has hired new staff to support the online, planning, and graphics and design teams with the additional workload.

“This was probably the key limitation we had in not growing through marketplaces earlier…we had to bring in some high calibre staff, especially in the area of merchandise planning,” he says.

Wilkinson says Crumpler hasn’t had any stock issues, despite selling through nearly a dozen marketplaces around the world, thanks to effective forecasting and daily monitoring. But he admits it can be hard to predict customer demand at the start, particularly in a new market.

One marketplace challenge that can be unpredictable and overwhelming, according to Life Interiors’ Karam, is the high volume of customer service requests. He describes it as the “hidden challenge” of operating across multiple marketplaces.

“I think there’s a point at which the law of diminishing returns starts to play a role,” he says.

An important part of the mix

For both Karam and Wilkinson, however, the pros of being on many marketplaces still outweigh the cons.

“I am a big advocate for growing the brand through marketplaces,” Wilkinson says. “Traditional wholesale, especially bricks-and-mortar, is shrinking, and I definitely feel that I have less control of the brand in those places when it comes to discounting.”

Karam calls marketplaces “an important part of the mix” for retailers that have a strong brand, and says Life Interiors will continue to test and try new marketplaces going forward.