There is no question that the retail industry has taken its lumps recently. The 2016 holiday sales from brick and mortar stores were down noticeably, and recent news and announcements of store closings and liquidations from retail giants such as Macy’s and Limited Brands are sounding an alarm throughout the industry.
Yet there are some bright spots in the retail industry – opportunities that benefit consumers and enable brands and retailers to thrive in a challenging market. One such opportunity is curated online marketplaces.
The concept of an online marketplace is not new. Giants such as Amazon, eBay and Alibaba have found tremendous success offering a myriad of products to online shoppers. Although the industry is currently dominated by a few large players, the low risk/high return business model of drop ship-based online marketplaces offers a unique opportunity for brands and retailers to get in the game. In fact, newly developed marketplace software solutions make it easy for brands and retailers to capture an even larger piece of the $1.3 trillion global e-commerce pie.
I’m optimistic about the future of retail in 2017, and here are some trends I believe will make an impact this year:
The Internet has completely reshaped commerce. The days of retail’s local monopoly are over and the industry landscape looks radically different than it did just 10 years ago. Consumers have had a major shift in habit (shopping more online and via mobile devices) and expectation (wanting lots of choices and speedy transactions), and retailers who haven’t adapted to these shifting patterns have suffered. For example, look at the decline in market value over the past 10 years of some of the biggest bricks-and-mortar players in retail — Sears, J.C. Penney and Kohl’s — down 95 percent, 83 percent and 59 percent, respectively. Contrast that with online giant Amazon’s astonishing 1,910 percent rise in market value over the same period.
E-commerce is huge. E-commerce is growing. And E-commerce is here to stay. Today, e-commerce — the only trillion-dollar market in the world growing in double digits year-over-year — is just 7.7 percent of U.S. retail sales, according to the Department of Commerce. Yet the total U.S. retail market is a whopping $5 trillion. That means that there is still enormous opportunity for e-commerce growth in U.S. retail sales and I have no doubt that over the next decade, at least 25 percent of retail sales in the U.S. will happen online.
Data is key. Without a doubt, the winners of the commerce renaissance will be the brands and retailers who harness the power of data – product data, inventory data, transaction data, marketing data and every derivative thereof.
Marketplaces are the next big thing. Online marketplaces already represent 40 percent of the $1.3 trillion global e-commerce market. The concept is sufficiently vetted. Yet retailers are just catching on and there is still a huge opportunity available. In fact, while there are currently 100s of online marketplaces, I believe that nearly every retailer will operate a marketplace in the near future. The potential is huge.
Marketplaces offer enhanced revenue opportunity with little risk. Imagine having the opportunity to generate additional revenue without assuming the inventory risk? That’s exactly what marketplaces offer retailers. By utilizing the concept of drop shipping, retailers offer their customers extended aisles of complementary product while assuming no inventory risk. Brands expose their products to a much broader consumer audience and consumers gain access to a wider selection of well-curated products from a trusted brand. It’s a win-win-win scenario.
Curated products offer differentiation. Successful marketplaces avoid the “swap meet” effect. It’s easy to provide customers with endless choices of products, but more isn’t necessarily better. Offering the “right” products — products that are carefully curated and that complement the existing offering — extend the brand and allow marketplaces to differentiate themselves.
In order to scale, the marketplace industry must find an integrated solution. The online marketplace industry has not been optimized to scale. When brands want to sell product on various marketplaces, they have had to upload a profile, products, images, descriptions, and inventory on a daily basis for each marketplace separately and manage transactions on a one-off basis. However, technology to eliminate the friction and streamline this process is now available. With one simple integration, a brand or retailer can drop ship with any marketplace, thus opening the door for both brands and retailers to tap into this multibillion-dollar market opportunity.
This year started off with some challenges for the retail industry. Challenges, however, force change and the change we are seeing is encouraging. E-commerce continues to dominate growth in the retail sector and the smart players are jumping on the e-commerce bandwagon. More specifically, retailers are realizing that they must create their own drop ship programs as a default way to do business that complements their traditional legacy wholesale business.
Curated drop ship marketplaces comprise the fastest-growing segment of e-commerce and represent the biggest revenue opportunity for retailers today. And advances in drop ship and marketplace software solutions are enabling more brands and retailers to increase revenue by capturing an even bigger piece of the large and growing global e-commerce market.
Josh Wexler is cofounder and chief executive officer of RevCascade.