By Tony Preedy, Managing Director of Fruugo
Shopping has been moving from physical to digital channels for two decades now. However, COVID-19 has accelerated this long-term trend, rapidly increasing the proportion of retail sales conducted online, and many consumers are expected to stick to their new e-commerce shopping habits even when restrictions are removed.
The fact that consumers are and will continue to do more of their shopping digitally is inescapable, with billions of further transactions migrating to online channels in most major economies over the next decade. Forrester predicts that while the value of global retail sales will see a compound annual growth rate of one percent between 2019 to 2026, the growth rate of e-commerce will be more than ten times that.
Powering this inexorable pivot from physical to digital shopping are two further game changing trends: marketplaces and cross-border selling.
Spreading the love
When zooming in on the spectacular overall growth figure for e-commerce, you find that the main growth engine is the expansion of marketplaces as a trading channel for retailers and consumers. While sales on retailer’s own websites are expected to rise by ten percent each year, marketplaces are growing by 16.5 percent. By 2026, more than two thirds of all online shopping revenue will be generated through marketplaces.
A significant amount of this revenue stream will flow to the marketplace giants we all know, such as Amazon and Alibaba, however trillions of dollars of transactions will also be conducted within a sprawling network of hundreds of smaller platforms. These are increasingly benefitting from product searches being made on search engines such as Google, rather than inside closed marketplaces such as Amazon.
What will become increasingly common within the e-commerce industry is that merchants looking to capitalise on this huge growth in marketplace-enabled sales will expand their online presence to cover as many bases as possible. If you lack mainstream name recognition, and do not have the ability to run marketing campaigns for eye-watering sums of cash, the most sensible way to grow is to maximise the amount of channels you market yourself on. Many are already doing this, but with time it will become the norm as consumers will also become more likely to make purchases outside the largest platforms, especially for specific or niche products.
In other words, marketplace selling will become an increasingly important force in e-commerce because it offers retailers the opportunity to avoid having ‘all their eggs in one basket’. For many smaller businesses that have previously been at the mercy of high streets, this is a radical and welcome change.
A second shift that is continuing to accelerate is the removal of geographical constraints when online shopping. While consumers were once tied to what they could find in their local area or nearest cities, it is now the norm to have a desired product shipped from across the globe. This e-commerce phenomenon is very much powered by marketplaces.
Research by consultants at McKinsey published by the IATA in 2019 found that over $5 billion worth of shopping was sent as parcels from one country to another and around 60 percent of that was trans-continental, such as from China to North America and Europe. What is new is not only the international trading, but the way in which marketplaces connect consumers and sellers directly.
Whereas stock used to be bought in bulk from the Far East and shipped to Europe and North America – adding a large gross margin before retailing to the customers – those same manufacturers can now retail directly to the Western consumer on marketplaces, cutting out the retail middleman. By creating these direct links, manufacturers can optimise their stock and instantly benefit from any regional spikes in demand thanks to the growing sophistication of marketplace platforms.
This process works because most of the time consumers are not searching for brands but products, or even just the solution to a problem they have, the answer to which is a product. Online search engines are fantastic at pairing this purchase intent to products for sale, and marketplaces that facilitate this internationally allow consumers anywhere to buy from retailers anywhere.
It goes without saying that this paradigm shift is having profound impact on conventional retail business models as nimble and direct-to-consumer brands take market share from established businesses that are slow to adapt.
Far from over
Retail has always been a dynamic and adaptable industry, and this is not the first time it has experienced the gradual upending of previously normalised business models. This time it is almost entirely due to the rapid growth of e-commerce which is heralding a retail economy that will become increasingly dominated by marketplaces. This new way of trading has strategic implications for how brands are built and how supply chains managed, and businesses that adapt to this new paradigm are the ones that will thrive.