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GUEST COMMENT The opportunities and challenges that come with the marketplace model

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The pandemic has completely upended retail. The shift to ecommerce was already well underway pre-Covid but has been greatly accelerated. Consumers now crave convenience, delivery, speed and choice more than any other qualities, and online has become the de facto method of shopping for many different demographic groups. 

As a result, the battleground in retail is now all about scale, and how much volume and traffic retailers can attract to their ecommerce platforms. Arguably, the more volume retailers can push through, the more profitable their business gets.   

To remain relevant in this environment, retailers have had to shift their business models fast. What we are now seeing is big traditional retailers such as Next and M&S transitioning into marketplaces to increase their relevance. Faced with their high street businesses in decline, they recognise that the most effective way to drive online sales is through adopting the marketplace model and turning to third party brands. In doing so, retailers can add significant scale and ramp up their ranges.

But the benefits don’t end there. By becoming marketplaces, and expanding their online customer bases, retailers can access more customer data and reach a wider range of demographics. They can also replicate the physical store experience online: for example, Joules has created Friends of Joules, and is trying to recreate the pleasure of walking into a bustling marketplace or department store online. 

Next has also been quick off the mark and, through its Total Platform, it has already built an impressive offer and is working with hundreds of fashion brands including Calvin Klein, Barbour and Whistles. Lord Wolfson, CEO of Next, is trying to go one step further and, as a result of the millions of pounds the business that has been poured into its ecommerce infrastructure, it is looking to become more like an Ocado for fashion than a traditional retailer. Such developments help to de-risk operations for retailers. They can offer more stock without having to buy it themselves and have cash tied up in working capital. 

Whilst the marketplace model is clearly the direction of travel for the retail sector, it is not without its challenges. The balance of power has shifted to brands which, in turn, puts pressure on the fees retailers charge for having a presence on their website. This is exacerbated by the barriers to entry for building marketplaces falling away and the increasing prominence of platforms such as Shopify that enable brands to establish an online presence rapidly and cost-effectively. 

Traditional retailers are also playing catch-up to pureplay giants such as Boohoo and Asos and are arguably still a long way behind. Asos and Boohoo aren’t constrained by legacy stores or antiquated systems and their sales have boomed during the pandemic, even buying a number of different high street brands out of administration to add to their own platforms. What’s more, they were able to do so without investing too heavily in their fulfilment capabilities, which were already fit-for-purpose.  

For retailers looking to compete in this forum, and to add more third party brands to their portfolios, the best way to do it is through setting up a dropship channel. Dropship allows retailers to access a number of suppliers and brands who fulfil the order directly to the customer, without having to stock the product in their own warehouse. 

This has many long-term benefits. It significantly reduces cost and risk, by passing it on to the supplier or local distributor. For cash flow and working capital purposes, it is therefore transformative. When the item is delivered to the customer, retailers get the cash up front and then they pay the supplier.

At Virtualstock, we are leaders in dropship and range expansion, enabling retailers to dramatically increase their online product ranges without holding any additional inventory. This year, Virtualstock’s platform has seen rapid growth as retailers use it to fulfil orders from third party brands, driving their online sales.

In this highly competitive retail landscape, where retailers are battling it out to engage and attract consumers with an increasingly digital mindset, dropship is a unique tool that enables retailers to retain their competitive edge. Those who are embracing it are able to add multiple different brands to their platform and can use it to scale up product ranges to meet demand. In a world still beset by uncertainty, that’s a hugely advantageous development.


Ed Bradley, Founder of Virtualstock

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