There have been many accounts over the past year of consumer packaged goods (CPG) brands and retailers struggling. For some, their troubles were the direct result of the pandemic and resulting social restrictions. For many others though, the pandemic simply widened cracks that had been growing for years but which were too difficult to address. For luxury British chocolate maker Thorntons and department store chain John Lewis, historic and well-loved brands in the UK, the pandemic forced their leadership teams to finally face some hard truths: that if they didn’t radically and speedily change their operating models, their businesses would not be around at all in a few years’ time.
From chocolates to fashion, DIY to beauty and healthcare, ecommerce accelerated three to five years in 2020. Our own Edge by Ascential data shows that globally, ecommerce grew from USD $2 trillion in 2019 to reach almost USD $2.7 trillion in 2020. In the UK, data from the Office for National Statistics (ONS) showed that in February 2021, online sales grew by 77.6% year-on-year across categories to take more than a third of total sales - a record share.
With most stores shut, many traditional bricks-and-mortar retailers embraced online channels and digital technology to survive, while some shrewd pure play online operators used the crisis as an opportunity to emerge as the new powerhouses in their sectors and industries. This was the case with ecommerce fashion upstarts ASOS and Boohoo. As the UK pulled down the shutters for the third time, these online companies that have only been around since the early 2000s made audacious plays for the fallen crown jewels of the British high street. In a catwalk coup, ASOS stylishly scooped up collapsed Arcadia brands Topshop, Topman, Miss Selfridge and HIIT for £265 million in February. These four brands combined had delivered total revenues of £1 billion in 2019 before the pandemic hit, devastating trading.
Boohoo paid £55 million for the collapsed department chain Debenhams. Then it snatched up the ecommerce and digital assets and associated intellectual property rights of Dorothy Perkins, Burton and Wallis from the administrators of the Arcadia Group in a cash deal worth £25 million.
These ridiculously inexpensive purchases of well-recognised - even globally recognised - brand assets unencumbered by the costly physical store estate gives both ASOS and Boohoo instant access to a large, loyal and complementary customer base and so the foundations for future growth - because ecommerce isn’t a pandemic blip and these brands - and many others - know it.
Today, four of the top five global retailers in the world are ecommerce-first businesses: Alibaba Group, Amazon, Pinduoduo and JD.com. The leading legacy store-based retail leaders around the world are urgently and heavily investing in digital technologies, like automation and AI, at the shopper-facing end of the value chain as well as the product-delivery end. They know they must act swiftly to catch-up with the “born-digitals” and adapt their business models to capture future ecommerce growth, set to substantially outperform any store-based channel over the next few years.
Retail 5.0: the value of marketplaces
By 2025, global ecommerce sales will reach almost USD $5 trillion, almost double what they were in 2020.
There is no question the future of retail is online, but more than that, there is growing evidence to suggest that the future of ecommerce will be driven by a few giant online marketplaces, such as Alibaba, JD.com, and Amazon, taking a disproportionate share of the growth. Edge by Ascential anticipates that just five leading platforms will account for two thirds of global ecommerce sales by 2025, while the top 20 to 30 major global marketplaces will likely generate between 85% and 90% of ecommerce volume by the same period.
Boohoo clearly sees the future through this lens. When it announced its acquisition of Debenhams, the Leicester-based firm said it would use the relaunched Debenhams platform to “create the UK’s largest marketplace across fashion, beauty, sport and homeware” adding new brands in new categories over time.
In a similar way to the department stores of the 1950s - or street markets - marketplaces with a wide variety of exciting products draw in the crowd. Moreover, because they are online, they have the advantage of tracking the shopper journey so as to offer a more customised approach to merchandising. As digital marketplaces are “network effect” businesses, the more consumers use them, the better they become at serving customers. They get smarter at knowing the preferences and tastes of their customers, which in turn attracts more customers, which in turn makes them better at serving customers...and so on.
This presents exciting opportunities for CPG brands over the next few years. There are huge gains to be made by leveraging the capabilities of these marketplace ecosystems to attract and convert shoppers. In an era where mass personalisation will become the way of owning consumer relationships, these marketplaces will ‘bet the farm’ on winning the battle for personalisation-at-scale - and have treasure troves of profits to invest.
By 2025, we expect the top marketplaces to be collectively spending between $38 billion and $40 billion in customer acquisition strategies and we believe this figure could even grow to $60 billion in a highly competitive space.
These figures are unmatchable for CPGs - and we believe they shouldn’t try. Why spend - and potentially waste - huge amounts of money in trying to buy a crowd, when it’s likely to be a lost cause and marketplaces are already doing it. What CPGs need to do is work out how to attract the marketplaces’ growing customer base.
This the fifth generation of retail - what we call Retail 5.0. It’s different from previous retail generations and it’s complex. It requires new operating models for CPGs to succeed, new organisational structures and skills. The path to success will not be easy, but there is no alternative but to embrace it.
Winning through marketplaces
No two platforms, or the markets in which they operate, are the same.
CPG firms must consider which one or ones are right for them. They must appreciate and leverage the specific levers of growth of each marketplace they work with. Once they have mastered this, it is essential to understand the ecosystems of each of the chosen marketplaces and cross-selling opportunities they offer. Much like learning a new video game, it’s imperative to learn the rules and the best techniques to win.
For example, in China, customer reviews on the leading marketplace JD.com carry a huge presence. However, if brands want to succeed on Amazon, they must gain a deep understanding of what it takes to be on Amazon Prime and how to convert their shoppers to “subscribe and save” purchasing.
Marketing and advertising play a significant role in attracting consumers on marketplace platforms, because this is where consumers search and complete their sales. Brands cannot afford to overlook this. Earlier this year, Walmart said its advertising revenue and number of subscribers almost doubled in its previous financial year as it set out a much-expanded vision for its media business, rebranded as Walmart Connect.
The leading retailer said it would focus on three main areas in its quest for Walmart Connect to become a top 10 advertising platform in the US. This includes offering holistic campaigns using all of Walmart’s digital properties, Walmart.com, Walmart Grocery, and the Walmart app, and providing shopper data access to suppliers through a novel partnership with ad tech firm The Trade Desk.
Walmart could start to focus more on paid search, as Amazon does, with an increasing amount of the discovery journey beginning on marketplaces. This means paying to improve search scores is becoming an essential piece of a brand’s toolkit in securing the top positions that matter on these platforms. These must be creative, targeted marketing messages centred on product benefits and value, but each sector will have its own specific dynamics, and some will be more seasonal than others.
Brands must weigh up the cost-benefit of investing in search terms versus the size of the potential reward. That’s where a product like Edge Digital Shelf can help understand your share of voice online and advise on how best to push up your rankings.
The global pandemic has shifted the way in which consumers shop and brands need to act accordingly. With marketplaces set to dominate in the new era of retail, it is essential that brands do not ignore their presence and spending power. Savvy brands looking to get ahead should therefore adapt their strategies to these platforms if they want to reach consumers and grow - if you can’t beat ‘em, join ‘em.