Analysis: The rise of the online platform powerhouse – beat ’em or join ’em?

Alibaba, Amazon, Apple… Next?

It might sound odd, but Next boss Lord Wolfson wants middle England’s favourite fashion retailer to become a platform business – an online destination that sells a multitude of brands.

But if you look below the bonnet, there’s evidence Next has already made big strides towards that aim.

The retailer has “radically changed” how it does business to create a £500m online aggregator business that sells hundreds of third-party brands alongside its own.

Wolfson wants Next’s website to be the “first-choice destination” for clothing and homeware and the most profitable route to market for third-party brands.

Next’s transformation into a platform is a bold move – but a smart one as experts predict that platform businesses will dominate retail in future.

Dominique Bonnafoux, strategy director at retail consultancy Fitch, says: “It’s already well in motion: Apple Store, Google, Amazon, Alibaba, Uber, Asos – the examples are endless. For the big retail platforms, it’s about encouraging customers to build the habit of coming to their platform first, no matter the need.

“With Amazon this applies to pretty much any product, with Uber it will be for various services like booking journeys or food deliveries. These brands are looking to route everyone into a single platform that will deliver across different needs and eventually become a default choice.”

Platforms are already capturing substantial spend. Take Amazon. The online titan accounts for almost half of US and a third of UK ecommerce sales.

Bonnafoux says convenience is a big reason why consumers are gravitating towards shopping on platforms.

“If you can find everything under one roof, and that ‘roof’ or platform knows what you personally like… then the temptation is to side-line shopping on individual sites with multiple orders, payments and return processes due to the extra hassle,” she says.

The migration to platforms is set to accelerate. Wunderman Thompson’s The Future Shopper report found that 62% of people were excited about getting all their goods through one retailer.

Competing with platforms

As more people shop through platforms, which have big budgets for marketing and services such as super-speedy delivery, how can single brand retailers compete?

Wunderman Thompson Commerce global head of consultancy and innovation Hugh Fletcher is blunt: “When it comes to services and delivery times, you’ll never be able to compete.”

It costs brands more to get noticed online because of spiralling customer acquisition costs, and many product and brand searches now start on websites such as Amazon and Asos.

OC&C Strategy Consultants partner Michael Jary says it is hard to rival the scale of platforms.

“Look at Asos: 17 million average visitors per month. A typical mono-brand retail site would be doing well with half a million. You’ve got masses of traffic and reach. It’s very difficult for the mono-brands to compete.

“The ones who will survive and drive traffic to their site will excel at the same old stuff. It’s about specialism, it’s about uniqueness, driving loyalty and conversion. If you have a brand that can do that, you’ll be fine. If not, it’s much more difficult being on your own against these massive pulls of traffic.”

Fletcher believes retailers need to offer customers added incentives to shop on their brand website rather than through platforms.

He says: “We use the analogy of the Michelin star guide. It originally set out to say what was worthwhile taking a detour from your journey for. For a three-Michelin star restaurant, you should make a specific journey to go to that restaurant.

“For DTC [direct-to-consumer], it’s what makes it worthwhile for a customer to take a longer, more convoluted experience for. The answer could lie in a number of things. Is the product unique enough? Do I get additional benefits? Is there curation on the site or useful customer ratings and reviews?”

Although retailers should make sure their DTC experience is better than buying through a platform, Fletcher acknowledges that is easier said than done because they typically have smaller budgets than the platforms.

Jary suggests there might be an opportunity for retailers to partner with tech specialists and piggyback on their expertise to offer slick websites, efficient operations and speedy delivery similar to the way grocery retailers have partnered with Ocado.

If you can’t beat ‘em, join ‘em

The sheer volume of traffic going to platforms means most brands will need to trade on them. As Jary puts it: “You need to fish where the fish are.”

Fletcher concurs: “You look at the sheer numbers that are going through platforms, and particularly Amazon. It’s quite difficult for you to hit your numbers without being on them. You’re actively cutting off a huge number of customers if you don’t.”

So given the compelling arguments about the power of the platform, should single-brand retailers simply forget about investing large sums to acquire and serve customers online and instead focus their efforts on selling through the big marketplaces?

Eagle Eye head of industry insight Miya Knights would advise against that approach: “High street brands are too big to put their eggs in one basket, especially someone else’s basket.”

She points out that recognisable brands, particularly those with a high street presence, will find shoppers searching for their brand online organically.

“Amazon ties you in, sees all the data you see and uses it to become a category killer”

Miya Knights, Eagle Eye

Marketplaces and platforms are also very busy places, so brands have to stand out against the many rivals they’re fighting for shoppers’ attention.

Selling on platforms can also dilute margins.

“It’s not always a harmonious relationship [between retailer and platform],” says Jary. “You see platforms seeking to gain a greater share of margin or charging brands for all sorts of added services. A brand’s profit opportunity is decreasing.”

Jary says there may be an opportunity for some powerful brands to negotiate favourable models to gain more margin from platform sales. However, in most cases, the power lies with the platform.

“As a brand, you ideally want to engage in joint business planning, have transparency, understand end-to-end economics and have a fair distribution of that but often the platforms are too powerful for that and don’t allow that to happen,” says Jary.

There are also concerns about giving platforms, many of which have competing own-brand products, access to sales data.

In fact, many platforms do not share crucial sales and customer data with brands.

Knights says platforms can use this to their advantage. She gives Amazon as an example: “Amazon ties you in, sees all the data you see and uses it to become a category killer.”

However, she highlights that other platforms, such as Next, are viewed more favourably. “It’s a good middle ground, a trusted partner in the same sector allowing tier-two and -three retail brands to spread their digital presence wider and reduce investment around customer acquisition and potentially fulfilment.”

“If you can split your product portfolio across those different channels it’s a really strong way of selling”

Hugh Fletcher, Wunderman Thompson Commerce

There is also a concern about losing ownership of the customer buying your products on platforms. “Do the brands feel like the customer is shopping them or the platform?” questions Jary.

Fletcher says there is often loyalty to the service – such as Amazon Prime – rather than the brands purchased on a platform. “It’s easy to transfer to be a shopper of one brand to another via a platform,” he says.

“There’s a long-term concern about the brand relationship with customers. If more of your sales are moving on to platforms you have to work harder to make sure your brand values are communicated through [customer relationships], advertising, social media.”

Retailers that hope to acquire new direct customers through their presence on platforms such as Amazon or Next online are likely to be disappointed, says Fletcher, who says they are unlikely to migrate to the branded website.

“It’s harder to acquire brand-loyal customers via platforms. Shoppers get quite a lot of benefit from their loyalty to someone like Amazon,” he says.

Platform approach

If platforms need to be part of a retailer’s ecommerce mix, how should they approach selling through these businesses?

Experts recommend retailers deploy a distinct strategy for each marketplace.

“Be aware of the platform’s specialism,” urges Knights. “Match the stock it’s trying to sell and the customer expectations of those using the platform.”

For example, retailers might consider selling end-of-line products on Zalando, which is very price-oriented, while new season or more trend-led capsule collections could be sold on fashion-forward Asos.

Fletcher agrees and recommends selling some exclusive products through a brand’s own channels to give customers a reason to shop there.

He highlights Nike’s approach. The sports giant sells its high-end and customised products Nike By You on its own DTC channel and puts more mainstream products on platforms.

“If you can split your product portfolio across those different channels it’s a really strong way of doing it. You need the capability, product range and resource to do that,” says Fletcher.

That can open up organisational challenges and means different divisions of the business need to be more joined up on aspects such as pricing and promotions.

Jary says capsule collections or even creating sub-brands for platforms could be a “logical option” that would limit the risk of driving customers away from a retailer’s own website and could even introduce new customers to the brand.

However, he warns: “There’s no single formula and we will see brands experimenting over time to see what the impact is on not just sales but customer perception.”

Platform businesses may add more complexity to a brand’s retail strategy, but they can also bring many benefits. One thing is for sure: they are here to stay, and few can afford to ignore them.