Specialty Retailers Embrace Marketplace Model
Retailers Take a Page From Amazon
Aiming to boost web traffic and increase sales without taking unnecessary risks, Express (EXPR), Urban Outfitters (URBN), J.Crew Group, and more retailers are selling other brands’ products on their websites. The clothing companies get a cut of the sales. This allows them to increase revenue without needing to hold inventory.
Amazon (AMZN) has had success with this business model over the years. For some time, specialty retail chains were reluctant to test this strategy because of fear that it would weaken their brands. But as demand for ecommerce grows, brands are working to emulate Amazon.
A Delicate Balancing Act
Specialty retailers are considering a variety of factors as they test this new business model. Host retailers want to ensure that featuring other brands will not cannibalize their own sales. They also have to prevent outside brands from becoming the main driver of sales growth. Amazon launched its marketplace in 2000 and today sells millions of items from millions of brands. These third-party brands are a key driver of its ecommerce sales. As of April, third-party sellers accounted for close to 60% of Amazon’s retail sales, compared to just 34% in 2010.
Retailers also need to make sure they do not overwhelm their customers by offering too many choices. To address those challenges, so far they have opted to offer a relatively small selection of brands chosen based on specific criteria.
>Express Sees Positive Results
Express began testing a marketplace model in 2019, the same year its CEO Timothy Baxter joined the company. The retailer views the initiative as an opportunity to offer items that customers want to buy but that are outside of Express’s main categories.
The retailer hosts items in beauty, activewear, and men’s grooming. With this model, Express has been able to expand its offerings without investing a lot of money. The strategy appears to be paying off. The marketplace is drawing new customers and presents a helpful opportunity for the company as it looks toward a goal of having $1 billion in online sales by 2024. Both investors and customers will be eagerly watching to see if this business model continues to grow.
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