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Expanding product range without inventory or cost

By Retail Technology | Wednesday July 30 2014

Marketplace expert Adrien Nussenbaum focuses on the most effective ways for a retailer to expand its product range, without costing the earth

Leaving aside for one moment the competitive pricing and excellent customer service, one of the main attributes Amazon brought to retail was the ability to offer increased product choice. Retailers can introduce all manner of customer service initiatives and reduce prices as they see fit. But with a finite amount of storage available to shops, Mirakl’s co-founder Adrien Nussenbaum points out product choice is one area that high street stores can’t ever hope to compete with Amazon.

“Because consumers crave a choice of products, retailers need to look at ways that enable them to offer that – it’s the old adage of giving the customer what they want. The good news is that there are options to enable them to do so,” he said.

Drop shipping

One such method is drop shipping. Instead of retailers holding products themselves, they partner with a wholesaler that stocks its own inventory or they liaise with the product manufacturer directly. “Drop shipping is convenient, efficient and minimises the risk, as a retailer only has to manage the products that have been ordered,” continued Nussenbaum. “It also allows for deeper and customised relationships to be built with a few core partners, so is particularly good for larger and more complex commercial relationships.”

The third party is responsible for packaging and delivery of products, which removes another potential stress, meaning that drop shipping can also work well for emerging retailers. For example, online fashion portal Brothers We Stand uses a drop shipping model as a way of bringing together ethical fashion labels.

Of course, drop shipping also lets retailers offer a greater selection of products to its customers. Yet the retail model with drop shipping is operationally complex and can drive up internal costs, as Nussenbaum explains: “Retailers attempt to integrate their order/customer management systems with those of third parties, which impacts costs. Customer service can be a problem too, with the different parties involved working to their own standards.”

Online marketplaces

The other main option for retailers to expand their product range, is the online marketplace. “The Amazon Marketplace is the most famous example but global brands such as Walmart, Best Buy and Galeries Lafayette have all launched online marketplaces too,” he continued. Some etailers such as notonthehighstreet.com, are based entirely on marketplace sales. But what has tempted retailers to venture into the world of marketplaces?

“A marketplace can be used to complement or replace the drop ship model, offering scalability, flexibility and profitability,” explained Nussenbaum. “By connecting sellers and customers directly, online marketplaces can provide a retailer with incremental revenue and margin, improved customer service, and a new way to test and feature products that are otherwise restricted. As it is so easy to bring new partners on board, retailers can offer greater choice for minimal additional cost. They also benefit the other parties involved – sellers get the chance to reach new customers, while consumers benefit from the greater choice.” 

Control concerns

An oft-cited concern with online marketplaces, is around control – what products are sold, what service is provided by sellers and the prospect of losing control over an overall brand. “Some retailers have been around for 100 years or more – why should they risk exposing their customers to a third-party seller that might not reflect those values? But there is no real reason this should occur. Crucially, the retailer retains control at all times over what products are offered, and how transactions and communications take place,” he said.

Additionally, while online marketplaces are good for scaling and adding a number of sellers quickly, they do not deal as effectively with complex, non-standard commercial agreements with partners.

Providing a much larger product choice is of increasing importance in retail, as consumers crave the convenience of buying their goods in one place. Both drop shipping and online marketplaces allow a retailer to do just that, as Nussenbaum concludes: “Whichever option a retailer chooses will vary according to specific needs, but offering an extensive and varied product selection is fast becoming a must-have in modern retail.”

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