Recent research finds that now expect more product choice, even in the same category. Retailers are under increased pressure to provide a differentiated and diverse experience, in a time when 56% of product searches begin on Amazon. This enhanced consumer demand for both product depth and breadth has forced UK businesses who operate an eCommerce environment to consider just how to expand their product assortment profitably if they want to survive this uncertain time.
Increasingly retailers are experimenting with integrating suppliers or third-party brands onto their site in an effort to add a new product category, bolster existing range or improve supply chain efficiency. And the reality is, whether the experiment has been a success or not, integrating a third-party can be an intensive process requiring resources across IT, eCommerce, Merchandising, Product and Supply Chain teams.
But why is this the case? And what are the solutions available to simplify this process so that we can reap the obvious benefits of leveraging third-party catalogues from multiple suppliers?
Why Would You Use Third-Parties in the First Place?
in the UK believe that product assortment plays a key role in their businesses' success, with 70% saying a large product range boosts customer acquisition. It’s certainly been the case for Amazon who last year boasted profits of £8.8b in the UK alone. It’s a simple proposition: more products = more sales. On-boarding third party suppliers who typically hold the stock, fulfill the order and manage the return, has for many, been the solution to scaling product range without increasing up-front overheads, but it’s not one-size fits all.
Typically product assortment strategy fits into three categories:
Focused on high turning products with deep inventory within core categories alongside expanded assortment ranges.
Direct-from-vendor line extensions that complement owned inventory and support fulfillment. The retailer still is the merchant of record, and typically takes a margin as with owned inventory and agrees individual terms, volumes and prices with each supplier.
Mass assortment further complementing owned inventory, deepening in existing categories with fast entry into niche and net new categories. “Sellers” or “Suppliers” are merchant of record and agree to pre-set terms, with the retailer taking a commission on marketplace sales on the site.
Each have their value and limitations, the challenge for retailers is to determine the right mix for their business.
Why are point to point integrations traditionally so hard?
So you have found a supplier, now it’s just a case of plugging them in, right? If only it were so easy. Integrating a supplier directly with your eCommerce means integrating product catalogues, data formats, stock availability, logistics, customer service, finance and in omnichannel businesses, store infrastructure.
It’s a major undertaking, and can also be a risk as you rely on one supplier for those products. For many businesses this process leaves a bad taste when looking to add new suppliers, but this needn’t be the case.
The reality is, having a platform where those integrations are done one-time only can remove the burden of integrating with multiple suppliers individually. As the operator of the platform, you can then give suppliers the tools to “self-integrate” with your platform, giving you the time to focus on finding the right suppliers and products for your customers.
Who’s Doing it Well?
There are many examples of global retailers who have taken an ‘experimental’ approach to their stock and range expansion - and it’s paid off.
Farfetch: Re-Defining Luxury Fashion
Look at fashion powerhouse Farfetch, who overcame early skepticism that luxury retail could ever adopt a platform approach, they now have over 980 luxury merchants offering 3,200 brands reaching an estimate 2.3 million customers across 190 countries. Farfetch generates most of its revenues from a 25% commission per sale.
Their recent IPO for $6 billion has certainly silenced critics.
Catch: Capturing the Generalist Market
Take Australian growth accelerator Catch, their evolution from a single ‘offer of the day” site to stocking tens of thousands of products has been remarkable. This year Catch expect to ship more than 3 million orders.
And not only this, their highly competitive platform has been enough to keep Amazon at bay as it entered the region last year with Catch's own sales were growing at 10 to 15 per cent a year. Catch’s addition of a marketplace platform (implemented last year) - allowing other traders sell their products to Catch's customers has resulted in sales growth of 50 per cent. Their marketplace has grown the number of products available on Catch from 150,000 to 1.8 million.
Best Buy Canada: Rising to the Top
Best Buy Canada realized that their core electronics customers wanted a convenient way to buy products in other categories from a brand they already trusted. They decided to experiment into new product lines using their marketplace model. It’s resulting ‘baby’ segment became its #5 best-selling category, comparable to its televisions, laptops, tablets, and wireless divisions.
The Benefits are Clear
It’s obvious that one of the key battlegrounds for retail over the coming years will be how to offer an endless aisle in a profitable and scalable way. With the growth of Amazon and Alibaba showing no signs of letting up, it’s crucial that retailers look to their product assortment to weather the retail storm.
The benefits of adopting a direct from supplier model are multifold.
- Drive incremental revenue with a low COGS Increase profit margin
- No need for upfront stock investment
- No risk of holding unwanted stock
- Create internal price competition on high-trafficked SKUs
- React to product trends and shifting consumer demand quickly
- Introduce complementary services to support product range and become the destination in your categories
- Significantly improve your ability to personalize and offer relevant product recommendations
- Eradicate out-of-stocks
- Offer a wide breadth of sizes and colors
- Improve SEO without increasing investment Increase the reach of your brand
- Rival the choice of generalists within your core category, utilizing your brand heritage for competitive differentiation
- Build a proposition around your curated ecosystem of partners
Getting the Help You Need
But we also know, it’s not one-size fits all. By working with Mirakl to understand your product ranging strategy, you get the benefit of years of experience working with many of the retailers and businesses paving the way in the platform-first approach, get in touch now to see how we can help you.
Written by Laura Hare
UK Marketing Lead, Mirakl