Why the Online Marketplace Model Will Lead the Way Going Forward
It goes without saying that the events of the past few years have fundamentally changed the way we all live our lives. From staying home and restricting our movements, to public and private events shutting down to nations closing their borders.
The impact such global events have had on the way we do business is massive. Scars will be left, and some business models will prove to be more resilient than others when facing a crisis of this scale and nature.
While many industries saw a massive reduction in their revenues during the pandemic, one industry as a whole not only flourished but set the stage for a massive paradigmatic shift in how we purchase goods and services - the online marketplace model.
Online Marketplaces To the Rescue
More than 40% of all post-pandemic online spending globally is taking place on marketplaces, according to the The Future Shopper 2021 Survey. This is a trend that is likely to not only continue but grow further, signalling a definitive shift in buying attitudes and behaviours online.
An example of an online marketplace model which saw massive growth was the area of food delivery. The likes of Ubereats, Just Eat, Door Dash etc saw enormous growth in use with Just Eat seeing revenues up 54% in 2020.
While these food delivery marketplaces satisfied our stuck-at-home hunger, the likes of Amazon satisfied much of our online shopping needs with Q2 of 2021 giving them a boost in net income by 48.4%.
No other sector saw as much change as the standard retail sector. The reality is that retail is one of the most affected sectors, first by seeing their footfall decrease drastically, but then being forced to shut down either by public pressure, government guidelines, or because a single coworker became ill.
Standard Ecommerce vs Marketplaces
The sight of empty highstreets became a familiar sight all across the globe, as an eerie silence descended upon the traditional brick and mortar model of retail.
The natural port of call for stores who could afford to do so was to migrate online.
The shift to e-commerce is mandatory for retail businesses to survive, but even e-commerce is not 100% bulletproof. Companies relying on single fulfilment centers and warehouses for stocking and managing their online orders are still at risk of having to close their operations due to sickness or external pressure.
However, when you look at how much better online marketplaces performed compared to standard ecommerce, you start to see a clear edge. Much of this can be attributed to the array of choice that marketplaces offer but there is more to it than just that.
Clearly, marketplaces are constructed in a way which allows them to weather the storm of such monumental shocks as the pandemic far better than others, but why is that? What is it about online marketplaces that grants them such flexibility? Let's find out.
Case in point - FarFetch vs Net-a-Porter
Net-a-Porter was one of the biggest online retailers which decided to shut down its entire operation, essentially halting their e-commerce revenue for the unforeseen future.
On the other hand, Farfetch, Net-a-Porter's biggest competitor, is able to thrive in this environment, and most likely capturing a large share of the online luxury sales throughout this period, but also potentially snatching Net-a-Porter clients for the longer term.
The difference between them? Farfetch has a distributed supply chain model. As a marketplace, Farfetch ships the large majority of its orders, not from a single warehouse, but from hundreds of fulfilment points spread across the world. Even the network of boutiques in Italy are able to fulfil orders, despite having their doors closed to the public. There might be cases where some boutiques need to shut down their operation, but that will impact a fraction of Farfetch's supply, rather than its entirety, allowing Farfetch to keep its website and operations running.
The impact doesn't stop with lost revenue. Net-a-Porter buys a lot of the stock it sells, holding tremendous stock value throughout the season, which is currently sitting in their warehouses devaluing as the current season passes. Items will eventually move to markdown territory, slashing even potential future profits significantly.
The Lesson to Be Learned
It's time for businesses to re-think their supply chain approach It doesn't take a global pandemic to realize the benefits of the online marketplace model, with orders being drop shipped from the brand or retailer to the end consumer. This strongly mitigates risks of shutting down operations and losing tremendous inventory value.
This is a core reason why marketplaces have shown themselves to be the sturdier option than standard ecommerce - the flexibility in their supply chains reduce the susceptibility to operational disruptions and shut downs.
It’s clear that online marketplaces afford unique advantages to companies and judging from the incredible growth we have seen over the last 18 months, it’s clear that it is a business model that will only continue to grow and transform the way we buy goods and services as a whole.
Transform Your Online Marketplace - Choose Onport
With the growth of your marketplace, you’ll need a solution that can help manage all aspects of your business operations like order routing, inventory management,shipping and payments.
Luckily, there’s Onport. Onport is here to help. Some of our clients have shifted from a traditional supply model to a distributed one, others creating a marketplace from scratch, and the opportunity is here more than ever.
Onport can facilitate how you work with a network of vendors that will fulfil orders for your marketplace. Get in touch and we'll be keen to share further insights into how the marketplace model can be run and how we are here to support it.