Golden Gate Ventures | Venture Capital for Southeast Asia

One-stop Web markets

Thanks to online shopping, you never have to leave the house to buy what you need.

But some e-commerce retailers are trying to make sure that once you hit their website, you do not leave it, too.

These are online marketplaces that bring together different sellers in one place, offering consumers many products and brands all in one website.

Think one-stop-shop behemoths eBay and Amazon, which are global examples of such marketplaces.

And locally, there are the niche marketplaces which have cropped up in the last few years.

There is, for example, furnishings and decor platform HipVan, which carries products from more than 100 brands on its online marketplace.

Then there is grocery delivery platform Honestbee, which delivers groceries from 30 partner companies such as FairPrice and Cold Storage.

EVERYONE BENEFITS

On paper, the online marketplace concept benefits both sellers and consumers.

Customers enjoy a shopping experience like in a brick- and-mortar store in which they can browse a variety of products and brands before checking out.

Also, consumers are protected against bad sellers as many of the platforms rely on buyers to rate and review sellers so bad sellers are quickly weeded out of the system.

Some platforms also hold on to payment from buyers and release the money to sellers only after the buyer confirms he has the goods. This results in fewer fraudulent transactions.

Mobile phone-enabled marketplace Shopee, for example, holds payments in a third-party escrow account until the buyer receives the goods.

And for sellers, listing their goods on an online marketplace gives them access to a steady stream of customers.

Sellers can also outsource expensive business functions such as marketing, payments and product delivery to the platform for a commission. And being listed on a reputed marketplace gives sellers more credibility.

The businesses that are most likely to list their products on online marketplaces are micro businesses which are usually run by one or two entrepreneurs.

For example, full-time entrepreneurs Tan Hui Hao, 25, and Isabel Sim, 24, who sell imported Korean snacks, list their products on Shopee, Redmart and Qoo10 under the brandname Hi Trading Supplies.

Mr Tan says: “It can be very daunting trying to drive traffic to an independent site as there are numerous online businesses gunning for the same small pool of online customers.”

In contrast, he says “marketplaces do a lot of expensive marketing on the sellers’ behalf”.

Ms Celeste Tan, 40, who sells children’s books, gifts and home decor items through her company Trinks.sg, lists her products on Shopee, Carousell, Trezo and Lazada.

She likes the support some of these sites provide, such as inventory-tracking tools and free masterclasses on marketing and product photography. “These insights can be instrumental in helping local online businesses succeed,” she says.

Sites such as online grocer RedMart, marketplaces Qoo10 and HipVan also take over the logistics of pick-up and delivery for sellers, which can help businesses cut down on a huge chunk of their operating costs.

Unsurprisingly then, more established brands such as L’Oreal Group, Phillips, GNC, Eu Yan Sang, Cold Storage, FairPrice and home-grown gourmet restaurant Da Paolo are also selling their products on such marketplaces.

Da Paolo, which specialises in fresh and packaged Italian gourmet fare, lists on RedMart and Honestbee.

It does not have its own e-commerce site.

Da Paolo group chief, Mr Guillaume Pichoir, 42, says: “These sites have a lot of traction and right now, it makes sense for us to outsource these functions to established players who specialise in ecommerce and logistics, instead of spending the money to build our own independent site.”

Meanwhile, FairPrice, which has its own e-commerce site, still lists products on delivery website Honestbee.

Its chief strategic officer Elvin Too especially appreciates the personal shopper service offered by Honestbee. “This provides shoppers with greater convenience.”

But online marketplaces also win.

They earn a commission from sales, which can vary from seller to seller depending on various factors such as the prices of the products and the brand reputation.

The platforms in turn can expand more quickly as more buyers attract more sellers and vice versa.

Associate professor Thompson Teo from the National University of Singapore Business School says: “The operator of the marketplace gains through transaction fees from sellers and can scale the business while building a valuable database of customer information and best-selling products.”

THE DOUBLE-EDGED SWORD

Some marketplaces are getting glowing reviews from buyers and sellers.

But the fact is, not all marketplaces – or vendors – will succeed.

Even though vendors are promised customer traffic in return for commission, some still end up making little to no sales on the sites.

Ms Cynthia Tan, 28, ran a business selling women’s clothing and accessories through Qoo10 and Rakuten, but she had to close it last year.

She ended up selling excess stock at flea markets at cost price.

She says: “It can be very discouraging to compete in a crowded marketplace, more so if the traffic on the site is a lot less than promised.”

And for sellers, the competition could come not from other sellers but from the marketplace itself.

Some marketplaces, such as Redmart and HipVan, also sell their own products.

Prof Teo says: “Marketplaces have all the sales information which can give them an unfair advantage if they decide to also sell the popular items themselves – often at a lower price.”

Sellers have no access to figures on how their product is doing vis-a-vis others, nor do they have the contact information of their customers.

Therefore, it is hard for them to turn one-time buyers into repeat customers.

Sellers are also affected when the site they sell on fold.

Japanese online marketplace Rakuten, for example, announced it was winding up its Singapore site in February this year.

And last month, Bloomberg reported that Redmart was seeking a buyer for its business.

If the sale of Redmart goes through, the more than 400 businesses listed on the site could be affected.

For some sellers, these issues are balanced out by the access to thousands of shoppers.

Ms Tan of Trinks.sg says: “This is a small price to pay for the support and traction my products get.”

For avid online shoppers such as personal assistant Gayathri Nair, 33, the convenience of online marketplaces continues to be the biggest selling point.

She does nearly all her shopping online and often turns to e-commerce sites to compare prices of products with those of brick- and-mortar stores.

She says: “Consumers in Singapore are savvy and want an efficient and safe way to shop online.

“It is one thing to be able to buy cheap products. But being able to browse numerous products on one site – you can’t put a price on that.”

 

Original article appeared on The Straits Times