After much speculation, Tesco quietly introduced its long-awaited marketplace last month, allowing third part sellers to sell direct from its website. But with a number of retailers moving in the same direction, will Tesco's offering be enough to pose a serious threat to leading players Amazon and eBay? Keith Bird, CEO, eSellerPro, shares his thoughts on Tesco's latest move and discusses the implications for the retail community.
Tesco's decision to move into the marketplace arena to compete with the likes of Amazon and eBay may have come as a surprise to some, but this is likely to mark the beginning of a new trend for retailers going forward. At eSellerPro we expect to see more brands following in the footsteps of Tesco and taking a leap in this direction as retailers continue to seek new ways to diversify their revenue streams.
As the number of online retailers continues to increase it is no surprise that brands are looking to develop their own marketplace. Not only do these channels offer low entry costs and broad support mechanisms to encourage business growth, but they provide online retailers with minimal risks and a whole host of opportunities to reach millions of potential customers. For brands, such as Tesco who already have a large customer base, introducing its own marketplace is likely to be the next logical step.
One key driver for Tesco to get involved with this type of marketplace approach is the attractiveness of being able to offer an even wider range of goods to consumers. Goods which may be considered too low volume for the company can now be offered through third party sellers on TescoDirect, removing the need for consumers to use multiple sites to find what they want. Offering this "long-tail" of products will no doubt help to drive traffic to TescoDirect, helping to increase sales for Tescos through this channel and further increasing revenue for the brand.
The launch of Tesco's marketplace marks a significant move into an area that has long since been dominated by two main players, and a move that may have been considered risky business by some. However, what many are forgetting is that Tesco has a number of unique attributes that will enable it to differentiate itself from the competition and pose a serious threat - the company's Clubcard points system being one. This acts as a key driver of customer loyalty for the brand and it is likely that this will draw some buyers to shop online at TescoDirect over alternative options such as Amazon and eBay.
With over 6,000 physical stores across the world, another large advantage for the retailer is the launch of its "Click and Collect" service. Currently more than 770 Tesco stores are part of the scheme and with 700 more collection points planned to be introduced over the next year this accessibility is likely to be a major draw for many customers looking to purchase goods online.
However, what is likely to prove the biggest threat for Amazon is Tesco's extensive distribution network and this will most likely be the biggest draw for smaller retailers. As a result we are likely to see competitors increase investment in their distribution centres in order to be able to compete with the supermarket chain to the point where delivery costs and timings will begin to be a battleground and same-day delivery will become a key differentiator.
With Tesco's recently reporting its first drop in profits for at least 30 years, the company are clearly banking on this new initiative to make up for its losses. It's still early days, but Tesco certainly seems to have all the vital ingredients to compete successfully against the likes of eBay and Amazon the question is will they utilise these to their advantage?
One thing's for certain; the move from Tesco is just the beginning of a domino effect in the constantly evolving retail community. Following in the footsteps of players such as Play.com and ASOS, Tesco's is not the first and will by no means be the last to tackle the UK marketplace landscape, but with a huge customer base, distribution network and loyalty scheme to match, Amazon and eBay may well have a reason to be concerned.