Three Ways the "Other M-Commerce" Will Change the Retail Game in 2014

Since the term was originally coined in 1997, “m-commerce” has referred to transactions from mobile electronic devices. While retailers can’t stop talking about mobile commerce, another “m” model promises to become the next retail game-changer: marketplaces, which have recently seen an explosion in popularity, particularly among retailers seeking digital expansion.

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Amazon created the forerunner of the marketplace model by offering a powerful platform for third-party sellers who might otherwise have languished in digital obscurity. Based on figures released by Amazon on January 2, over two million of these sellers now play on Amazon’s platform. On Cyber Monday, 13 million units were ordered from third-party sellers, representing a 50% increase over 2012.

These days, traditional retailers are getting in on the game in droves. Best Buy CEO Hubert Joly described increasing its online Marketplace assortments as one of three key initiatives going into the 2013 holiday season. Staples, the second-largest e-retailer in North America by sales after Amazon, currently features a respectable 200,000 unique items online, but its plans are to reach over one million within the next year and a half. Walmart more than doubled its online assortments over the past year, going from two million SKUs to more than five million. President and EVP of Walmart U.S., Bill Simon recently attributed the lion’s share of the expansion to its online marketplace.

Retailers’ digital bazaars are often lumped in with e-commerce, but their unique attributes and benefits warrant a separate focus. They are fast becoming a go-to growth vehicle, because they achieve three important goals for retailers:

1. DODGING “DEATH BY CATEGORY KILLING”

Staples' Marketplace Partner, Wayfair.com

Staples' Marketplace Partner, Wayfair.com

Carrying wide assortments within set categories was a recipe for retail success in the 80s. These days, the explosion in online competition and internet-enabled price transparency makes category limitation a liability. Category killing contributed to the demise of retailers such as Circuit City, Borders and Blockbuster, but as many retailers shrink their physical spaces and slow down store growth, the endless aisles of online marketplaces promise radical category expansion without the risk. Staples’ expanded marketplace will offer everything from medical supplies to hard hats, even as it sets its sights on reducing retail floor space by 15% over the next three years. Staples will collect commissions on every marketplace sale without having to take on inventory or markdown risk. Although marketplace commissions may be small relative to the margins on products that retailers stock and sell themselves, the ROI is sky high.

2. EXPANDING THE BRANDING

Target is partnering with eBay to test the marketplace waters rather than going it alone, however its recent acquisition of digital brands CHEFS Catalog, Cooking.com, and DermStore.com has created a de facto digital marketplace filled with unique items. Target plans to integrate CHEFS and Cooking.com into its registry early this year, and opened online portals for all three brands. Over the holiday 2013 season, It began carrying CHEFS’ private label on target.com. Walgreen has achieved similar brand portfolio expansion through its acquisitions of Drugstore.com, not to mention the digital assets that came with its sizable investment in Alliance Boots last year.

CEO Gregg Steinhafel has also hinted that Target will explore selling its brands through other marketplaces. I’ve been talking about what I call the public brand movement for a while, as retailers such as Sears and Office Max have been making their private brands available to other retailers. Given Target’s ongoing focus on private and proprietary brands, marketplaces are a relatively stealthy and scalable way for it to monetize brand equity outside of its borders. For retailers like Target that carefully guard their brand assets, keeping brands on the digital down-low in neutral environments is also sensible compromise between over-exposure in physical retail and under-utilization of brand equity.

3. AVERTING SCALE-FAIL

Retailers are stitching together massive scale by connecting digital and physical assets. This is the real power behind the wave of small-format retail launches, like Walmart’s recent acceleration of its Express and Neighborhood Market stores and its plans to launch a convenience store concept this year. These stores will also serve as pick-up locations for the thousands of unique items that Walmart offers online, including those from its marketplace partners. This spring, Target will begin bringing its newly-acquired digital brands down to earth as CHEFS’ private labels make appearances in Target stores and it plans to implement an in-store pick-up for web-only items this year. At Sears, if customers don’t see something that they like in stores, store associates can use the Shop Sears app to choose from the millions of items offered by third-party sellers on its marketplace. Sears’ Shop Your Way members can even earn rewards on purchases from these sellers. The upshot is that every store that these retailers operate will have the potential to facilitate sales that transcend the inventory and the category limitations of each store. So much for digital domination. Physical scale, fueled by marketplaces, is now a killer advantage.

M-Squared

Marketplaces may be the new m-commerce, but they will work best when tethered to mobile. As in-store fulfillment gains traction, mobile strategies will need to be built with that functionality in mind. If you’re a retailer and your endless aisle assortments aren’t accessible by mobile, your marketplace will be a misfire. At the same time, brand marketers, solution providers and agencies have an amazing opportunity to position their mobile solutions and strategies as making the most of retailers’ marketplaces. I’ve also been encouraging my clients to treat marketplaces as discrete distribution channels, and to dedicate teams to exploring marketplace opportunities and partnerships.

One of the reasons online and mobile statistics can seem so alarming is because their impact can’t be determined by observing store traffic levels and out-of-stocks. The same will hold true for marketplaces as they gain momentum, but make no mistake. In 2014, they will hit their marks.