Sales through marketplaces. Growth points and pitfalls
27.05.2024 2388

Sales through marketplaces. Growth points and pitfalls

Over the past few years, marketplaces have been actively growing, taking away share from offline retail. And shoe brands are eager to sell their products through these online platforms, hoping to earn a lot more and scale their business. Marketplaces really take on a lot (issues of logistics, delivery, returns, promotion in search engines), but everything is as ideal and rosy as it seems to beginners. Inexpensive traffic and regular sales come at the cost of risks and fines. SR expert in sales management and strategic development of fashion brands, business consultant Daniya Tkacheva talks about growth points and pitfalls of working with marketplaces.

Denmark Tkacheva Denmark Tkacheva -

business consultant on sales management and strategic development for fashion brands. 21 years of sales management, 13 years in fashion retail, ex-regional sales manager for Nike Russia. Author of articles for Forbes, Kommersant, RBC.Pro, speaker of the business program of the CPM, Textillegprom, Interfabric exhibitions, and the Tinkoff conference. My business", Fashion factory School. Member of the Council for Electronic Commerce of the Russian Chamber of Commerce and Industry.

Over the past few years, marketplaces have been actively growing, taking away share from offline retail. Thus, from 2019 to 2022, Wildberries’ turnover grew by 649% and amounted to 1,67 trillion rubles, and Ozon grew by 564% over the same period, and its turnover amounted to 536 billion rubles. These data were reported by the Vedomosti newspaper with reference to company data. The pandemic and internal marketplace programs have made significant adjustments to the growth of marketplaces. In 2020-2021, with the introduction of isolation, the number of sellers on marketplaces grew exponentially from quarter to quarter. There are more and more products on the platforms, as well as buyers.

Well, after the blocking of Instagram (owned by the Meta company, whose activities are recognized as extremist and banned in the Russian Federation) in March 2022, the number of trademarks began to increase again due to the fact that for small businesses the main source of traffic was marketplaces. In addition, marketplaces have become a platform to attract buyers who previously only bought designer brands from the banned network before it was blocked. Especially for those who do not work with VPN services and have left a prohibited social network.

Thus, in 2022, the number of sellers on Wildberries more than doubled and exceeded 1 million. Sellers of footwear and kitchen equipment were the most active in the online segment: their number quadrupled over the year, Kommersant reported, citing market participants.

The driver of supplier growth is always available traffic. Marketplaces perfectly solve this key problem for sales. The turnover of marketplaces is growing year by year, because buyers, especially with the departure of foreign brands, began to visit marketplaces more often in search of the right product.

In addition, no store can compete with the budgets of leading marketplaces, which they spend on promotion in search engines. Marketplaces attract a lot of traffic and regularly, which an online or offline retail store cannot always afford. Therefore, marketplaces are an effective solution for a product of any price segment. The only important thing here is to choose the right marketplace.

Factors that reduce the level of sales in online stores are the cost of delivering goods to the end consumer, trust in the platform and the need to leave your details in stores. Marketplaces solve both problems: on the one hand, delivery in most cases of even a few units of goods is free for the client, and on the other hand, a huge marketplace inspires more confidence in terms of data security and low risk of fraud.

For sellers, marketplaces are also good for reducing shipping costs. There is no need to deal with single shipments. It is enough to ship the goods to the marketplace's warehouse, and then deliveries and returns of goods take place using the marketplace's forces. 27 pick-up points only from Wildberries allow you to deliver goods in a short time even to the most remote corners of Russia and the countries of the Eurasian Union (EAEU).

But not everything is so perfect. Inexpensive traffic and regular sales come at a cost.

The first thing a brand faces when entering marketplaces and, at the same time, selling a product in its online or offline store, social networks, is that sales through its (direct) sales channels suddenly become smaller and, in the end, disappear . Wholesale suppliers are also gradually leaving, and a clothing or shoe brand finds itself completely dependent on marketplaces.

This happens due to the cannibalization of traffic by marketplaces. By selling the same product in all sales channels, the brand “kills” its sales in D2C (direct) and B2B (wholesale) channels, since none of them can compete with marketplaces either in cost and delivery speed, or in size discounts, nor in terms of attracting traffic. The marketplace even takes suppliers who are loyal to the brand, because the price on the platform will in any case be lower than on the manufacturer’s website.

Therefore, an important condition for working on the marketplace for a brand is product differentiation or, more simply, division of the assortment in order to reduce the risks of this very cannibalization of traffic. It is important that the marketplace sells a product that does not overlap with any of the brand’s channels, and then this will allow all channels to scale. A negative side effect is a decrease in production productivity, an increase in the cost of the product and, as a result, larger balances at the end of the season.

Let me return to the issue of price. When deciding to work on a marketplace, it is important to remember that now it is not your business, but the marketplace’s business. He is the authority that dictates to you which product to discount and which not. Of course, at the beginning this is always a recommendation, but later the marketplace will insist more and more strictly on reducing the price of the product if its sales rate is insufficient. The marketplace is not a charitable organization that makes money from storing a brand's product. The maximum turnover of goods per unit of time is important to the marketplace. If a product is selling slower, then the brand/retailer should discount to speed up sales. If you imagine that the same product is sold on the brand’s website and on the marketplace at a discount, it is obvious that the buyer will choose the marketplace when comparing. And you can check prices in 2 seconds by typing the brand name into the search bar.

Therefore, product differentiation will save the business from losing traffic. But even if a brand sells a unique product on the marketplace, pricing will for the most part be outside the brand’s control, and it will periodically have to participate in promotions.

Another “beauty” of marketplaces is discounts for regular customers. On Wildberries it is called SPP, and Ozon also gradually began to introduce similar mechanics on its platform. This is an additional discount to the end consumer due to the platform in the amount of 15 to 30% depending on the segment and product. This is another tool for increasing platform loyalty from marketplaces, a benefit for the buyer and a problem for the seller.

What good is it for a brand that a product in which it has invested effort, resource, effort is sold at a 30% discount? From a strategic point of view, this creates an expectation among the consumer that a product of similar positioning and quality can be purchased at a 30% discount, when in fact this is not the case. In addition, if a brand with a similar product wants to enter another competitor's marketplace, it will have to set a similar price. These price wars primarily affect the brand's margins.

The seasonality of the product, which is typical for the shoe segment, also leaves its mark on prices. After all, when selling a seasonal product after its end, you need to make discounts and sell off-season goods so as not to pay for its storage until the next season. Therefore, it is better to increase the share of carryovers (leftovers) of the base product in the assortment, items that move from season to season. Thus, it is possible to increase the brand’s margins, develop flagship cards, increase the sales volume for each card not for one season, but for six months or more, while reducing the volume of illiquid stock.

Another negative factor for the brand is the low repurchase of the product. For clothing and shoes - approximately 30 to 60% of the ordered product. Typically, this is 30%, that is, 2/3 of the product volume always goes to different warehouses and returns again. If our task is to sell goods worth X rubles, there should always be 3X in stock.

This is a significant financial burden on the brand - keeping such a volume of stock in the marketplace warehouse - which not every brand can afford. Because of this, brands supply smaller volumes of goods to warehouses, which leads to the washing out of the size chart, lack of goods in stock, a decrease in supplier ratings and, as a result, a drop in sales. Yes, this is another nuance of working on the marketplace - the dependence of sales on the supplier’s rating and product card: the higher the rating, the higher the sales.

If you work on a marketplace with a similar buyout percentage, you need to get used to the integrity of the packaging of most products, traces of trying on, and sometimes wearing products: shoes for a matinee, sneakers for training at the gym, high-heeled shoes for a shoot, etc. This is not may not reduce brand loyalty, negative customer reviews, and hence the low rating and drop in sales.

Another way to make money from marketplaces is through fines. In 2022, Wildberries earned 8,4 billion rubles from fines, as reported in the media: for unreadable barcodes, for self-purchase, incorrect dimensions of shipped goods, etc. All these fines place an additional burden and risk on the shoulders of sellers. The cost of an error becomes higher and higher, and disputing fines becomes the responsibility of the seller. For example, sometimes the platform reads external advertising such as placing ads with bloggers as self-ransoms. Therefore, it is important to prepare for lengthy correspondence, fines and defending your interests with Wildberries. At Ozon, external advertising works without such risks.

External advertising is becoming an important tool for attracting traffic to your product cards on marketplaces, since internal advertising, promotion within marketplaces, is also becoming more expensive.

Internal advertising is another source of income for the marketplace and a sales growth tool for the brand. Because competition is getting higher, advertising rates are getting higher. This also affects the unit economics of the product. When entering the marketplace, it is important to budget for monthly promotion costs and prepare for increased rates, especially as the season approaches. After all, competitors also use this tool to the fullest.

 Thus, a brand can and should make money on marketplaces if the following conditions are met:

  1.  Carry out product differentiation.
  2.  Include in the retail price a “budget” for future discounts.
  3.  Develop product flagships and/or carryovers, items that move from season to season.
  4.  Work on the packaging and make it strong and “vandal-proof”; be prepared for the fact that standard shoe boxes may break.
  5.  Store sufficient stock in the marketplace warehouse, taking into account the redemption percentage.
  6.  Set a budget for promotion: internal and external advertising.
  7.  For external advertising, be prepared to prove that the advertising integration was real.
  8.  Double-check the dimensions of the product, boxes and check the accuracy of the barcodes.
  9.  Determine the target indicator for the share of sales from marketplaces in the total business volume and follow it.
  10.  Don’t think that the marketplace will save you from all problems, treat it as testing hypotheses.

  Photo: GEOX' Pre-Fall 2023
Over the past few years, marketplaces have been actively growing, taking away share from offline retail. And shoe brands really want to sell their goods through these online platforms, hoping to earn a lot more and...
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