The marketplace business is growing rapidly. More and more online retailers are converting their business and integrating a platform model at the expense of the previous wholesale business. With a huge impact on classically oriented fashion brands. E-commerce and the focus on the DTC business make completely different demands on brands than the previous, classic wholesale business. Nevertheless, there is no alternative to the transformation of fashion brands if you want to continue to be represented in online retail, says Thomas Höss, CEO of e-commerce service provider Gute Marken from Munich. For him, the topic is highly topical.
Gute Marken GmbH specializes in marketplace connections and e-commerce for fashion brands and not only provides its customers with the technical solutions, but also takes on all services from data management and customer care to payment and shipping. Customers include brands such as Angels, Codello, Olsen, Daniel Hechter, Pyua and Bugatti. Höss explains the challenges many brands are currently facing.
Mr. Höss, when large online retailers like Zalando announce that they want to double their platform business by 2025, what does that mean for traditional, medium-sized brands?
Thomas Höss: All major online retailers are currently transforming themselves into platforms and want to significantly expand their marketplace business. In return, this means that the share of the wholesale business will decrease. For many medium-sized brands, this means a significant change, because they are no longer ordered by the large online retailers.
So if you want to be present on Zalando, About You & Co – and there is no alternative for many brands – you now have to offer your goods there yourself – and map all processes yourself. In addition to the technical and personnel challenge of now building up a profitable marketplace business with all the associated processes such as data management, fulfillment, logistics, marketing, controlling, etc., this also has a major impact on liquidity: In wholesale, the brands receive their income at the beginning of the season with the delivery from the online retailers, and these are now gone. Instead, they now have to pre-finance the goods and bear the risk of the goods. While the margins are higher in the model, so are the costs.
They support medium-sized brands in outsourcing their e-commerce, including marketplace connections. What do your customers say about this development?
Initially, change is always a source of uncertainty – but it is also always an opportunity for further development. The brands now have the opportunity to increase their sales, since they can now not only collect wholesale sales, but also retail sales. Whether you also make additional profits depends on the amount of the shopping cart: If this is less than 100 euros, the brands usually achieve a similar margin as before – due to returns and logistics costs. With a shopping cart value of more than 100 euros, there is a very good chance of increasing profits in addition to sales.
In addition, the brands also receive support from the platforms. With its Trusted Wholesale program, Zalando, for example, offers brands the opportunity to continue to bear the goods risk for a defined transitional period so that the brand can learn without risk. In addition, all key figures from returns rates to write-offs are made available in order to make the transition for brands plannable. We at Gute Marken build on this, analyze the numbers, calculate a business case and develop a suitable strategy for the brand. With this approach and the active cooperation with Zalando, the brands receive security, and then the opportunities usually outweigh them.
Where do you currently see the biggest challenges for brands in relation to e-commerce?
E-commerce places very different demands on a brand than classic wholesale business. Especially when it comes to international e-commerce, dealing with the different requirements of the European marketplaces, it gets really complex. Building a profitable set-up here requires a completely new look at key figures.
For example, an article can have high sales, but with high return rates, this can also lead to high losses at the same time. It is important to recognize these early and to take countermeasures quickly. Different reports and alerting systems are simply needed as the focus shifts away from assortment and towards managing each individual product. Retail is detail – but e-commerce is super detail!
It is said that what sells well in stores does not necessarily sell well online. You have to tailor the assortment for each channel.
In principle, stationary bestsellers also do well online. But you have to build it up, that doesn’t happen overnight. It therefore makes sense to primarily push NOS products and bestsellers online. The other way around, however, it also applies: Nobody buys online what nobody wants in the store. Online is a mass market that can become extremely positive, but negative also remains negative. It is important that the range and channel match in terms of target group and price segment. There are also surprises and channels can perform differently than expected.
Many brands are currently faced with the question of which channels they want and can still serve with the current manpower. What situation do you currently see in your daily business?
Today it is no longer a question of whether brands are present on a channel or not. They usually have no influence on this because their dealers are there anyway. The question is rather whether they want to actively manage the channel or leave it to their dealers. Traders often use marketplaces to market their surpluses, and in this passive channel, the red prices usually predominate. In addition, on the platforms, their own dealers are not only customers but also competitors. This often creates price wars, which can be tricky due to the constellation.
I also often experience that brands sometimes do not even recognize who is selling their own products on a channel – because this is done, for example, via subsidiaries of the dealers or service providers. For this reason, it is essential for a brand to know its customers and their sales channels and to integrate this firmly into the e-commerce strategy.
At the same time, many are afraid to outsource their e-commerce. Can you understand that?
Theoretically yes, practically not. I often see that brands underestimate e-commerce because it requires active management and this is where the devil is in the details. If, for example, key figures explode and you cannot explain the cause, you often learn a lot. So it makes much more sense to team up with specialists who have their processes under control and are able to manage the range and channel at product level.
In addition, outsourcing does not mean that the brand loses control of its own online presence. It depends on the partner. For example, we are a service provider that implements outsourcing for brands. The decisions and in particular the price sovereignty always lie with the brand.
How does a team have to be set up and what qualifications does the employee need to have in order to get into e-commerce?
Must have strong analytical skills. E-commerce is a numbers business based on details. If you want to be profitable, you must not rely on your gut feeling, but must always keep an eye on the KPIs and actively manage the products. But that’s not all: It needs online marketing managers with SEA focus, channel managers, supply chain experts and people who take care of content with SEO focus and so on.
What advice do you have for brands who are just considering taking e-commerce into their own hands?
If you want to get started, you should concentrate on top sellers and NOS products. It needs top content, otherwise you will get lost on Zalando and Co. A strategy is also important: am I concerned with my brand image or with sales and profit targets? Both require different actions. What is definitely not possible: Simply upload the product data to the platform with the existing team and then it will work.
What are the common beginner mistakes when brands enter the marketplace business?
I often see that brands and especially retailers use the marketplace for surplus marketing. I don’t recommend that because there are other channels for that, such as Brands4friends or Zalando Lounge. This also applies to products with quality problems – be it fit or workmanship. High return rates are then inevitable and eat up the margin. Rather, brands should write a targeted pre-order and then also make sure that enough goods are placed in the online channel. Because if you want to build products, you can’t risk them running out of stock. The rule of thumb is: ‘Start with a top-shelf assortment of top sellers and NOS and stuff it deep.’
What does Gute Marken do to support Fashion Brands with this step?
Gute Marken sees itself as a partner to fashion brands. We have the technology, the systems, the processes, the staff and the know-how to successfully position brands in the marketplace business or in online retail. Our business model is success-based, so we have a great interest in our customers selling online successfully and sustainably. We have a lot of experience due to our high volume and are significantly cheaper than if you want to build everything yourself.
What development do you see for the future?
I assume that wholesale will continue to lose importance and that marketplace and online business will gain. Outsourcing of e-commerce in parts or completely will also increase because the business is becoming more and more complex. In addition, the requirements for content and logistics in bricks-and-mortar retail will be aligned with those of e-commerce, and bricks-and-mortar retail will be closely networked with online in the future. In terms of channels, social commerce with Instagram, Facebook and co will gain significantly in importance. These are channels that new pure D2C brands know how to use for themselves. In the field of technology, live shopping will become increasingly important. We are in the process of conducting initial tests with our customers and the first results are already very promising.
Photos: Gute Marken GmbH