Source: Facebook | Loblaw
Is Loblaw’s Decision to Close Its Online Marketplace a Sign of Things to Come?
Loblaw, Canada’s largest grocer, is closing its third-party online marketplace, launched three-and-a-half years ago, to focus its website on grocery and pharmacy.
“We launched the online marketplace in late 2019 to understand how complementary products could extend our aisles online,” Loblaw said in a media statement. “While we’ve learned a lot about what customers are looking for in their online assortment, given the rapid change in e-commerce over the past three years, we’re winding down our marketplace and focusing on our core grocery and pharmacy online shopping experiences.”
In launching the site in November 2019, Loblaw billed Marketplace as “the largest range of products available to Loblaw customers to date,” offering expanded online offerings across baby, toy, home, kitchen and pets.
The Globe and Mail said that Loblaw “faced stiff competition” from other major online marketplace sellers, including Walmart and Amazon,com, which sell groceries.
The Globe and Mail’s report also noted that Canada’s Hudson’s Bay had temporarily suspended its marketplace, launched in 2021, to cull underperformers. Hudson’s Bay told the newspaper the changes “in no way reflects performance” and it remains committed to the strategy.
Walmart launched its online marketplace in 2009, followed by Best Buy in 2011 and Staples in 2014. More arrived in recent years, including online marketplaces from Albertsons in 2018, Target in 2019, Kroger in 2020, Giant Food in 2021, and Macy’s in 2022.
Most major chains haven’t recently highlighted their third-party marketplace progress. Macy’s, on its fourth-quarter analyst call, said over 90 percent of marketplace customers buy its merchandise.
“Marketplace, number one, captures incremental sales opportunity in categories and brands where we have historically limited offers, such as video games and electronics; two, drives a larger average order value and higher units per order; three, allows us to quickly move into new and adjacent categories without inventory risk; four, gives our customer more choice at scale; five, enables us to shift channels for certain customer-wanted brands that do not have a high velocity of sell-throughs; and six, attracts a new, younger customer,” said Jeff Gennette, Macy’s CEO.
Discussion Questions
DISCUSSION QUESTIONS: Why do you think Loblaw’s third-party marketplace didn’t find success? Have the last few years offered any insights into the opportunities and challenges of online marketplaces for physical retailers?
Poll
Loading …BrainTrust
This is a case where the endless aisle needs to stop at your core competency. Focusing on your brand values and product line is the key to success. Stick to what made you famous. It has to be challenging enough to compete against Metro, Sobeys, and others for grocery business and three major Canadian chains in the pharmacy game. Why even try to compete with the online juggernauts like Amazon? Well, I guess they did, but are refocusing now.
Focus on your products and offerings. No point in trying to out-compete Amazon and how many times are prices from third party sellers outrageous, which doesn’t help the brand of the retailer offering the marketplace.
“90 percent of marketplace customers buy its merchandise”
Of course they do, because most marketplace shoppers are Macy’s customers who stumble upon the marketplace. They’re not new customers who come to Macy’s marketplace as an alternative to Amazon. I would guess the same holds true for most retailers operating marketplaces. This tells you all you need to know: marketplaces are incremental. There is nothing wrong with that, but they are not a replacement for the core offer. The fact the whole world and his wife now seem to be doing marketplaces undermines their differentiation.
When you have dominant marketplaces like Amazon and Walmart that have loyal visitors, it is difficult to change consumers’ online shopping habits. Loblaw’s marketplace apparently didn’t attract enough traffic and revenues to make it a profitable endeavor. Unless you are a powerful retailer, launching an online marketplace is very challenging. As Ken Morris mentioned above, it is better to stick with what you do best.
Disrupting a consumer’s already ingrained shopping habits is one of the hardest things a retailer can do. Bridging the gap in the shopper’s mind between groceries and video games is a huge leap, and doesn’t offer the right customer experience to engage trust in the products. It might have been smarter for them to operate their marketplace as a completely separate entity that connects back to grocery rather than the other way around. Amazon has discovered this, operating as a marketplace first rather than a grocery store.
This is a fairly simple one. Loblaw’s third-party marketplace didn’t succeed because consumers didn’t find it a better alternative to existing and/or new digital marketplaces. If you want to catch mice you need to first design a better mousetrap.
Channel expansion is a worthwhile activity for brands and retailers. Expanding into a space where you directly compete with the 800 pound gorillas is risky, and as proven, often unsuccessful.
As many have commented, focus focus focus. In today’s market and as always, if you move to the middle of the road you get run over. The best and hardest decisions are the ones where you determine what you re not going to do. If it is neutral or negative, it is typically not worth the investment and the expense to the brand promises.
The allure of the marketplace is enticing. Adding incremental sales with a merchandising long-tail has a nice feel of endless aisles, and endless sales volume.
And yet, the biggest opportunity for growth and profitability is often right in front of you. A company brand has a center, a core that needs tending. Staying true to core products and loyal customers often means following a general rule that 20% of your customers (and products) generate 80% of your sales (and profit). Build this well, worry about the other stuff later.
Digital is great and it’s the future, and blah-blah-blah. But grocers need to focus on the fundamentals in their stores: offer shoppers good quality products at a fair price. It’s a timeless formula for success.
Loblaws does a good job at being a retailer and merchant. But, policing 3rd party marketplaces that behave more like the wild west than adjacent category extensions is a full time job that likely doesn’t pay well. Smart to focus resources on driving core business. This is a trend to watch in retail.
Endless aisle is a core offering. Loblaws doesn’t have the infrastructure nor the customer service processes in place to out-compete Walmart, a more direct competitor, let alone Amazon. It’s a low-margin distraction which might even cannibalize their existing customer base
Several retailers have tried their hands at third-party online marketplaces. Eventually, they all come to the realization that operating an online retail business and managing a physical store are distinct endeavors. Running an eCommerce firm entails numerous challenging responsibilities such as fulfillment, last-mile deliveries, managing returns & reverse logistics, and more.
At the core, I believe that many retailers launch their online marketplaces in response to external pressures from competitors, investors, or owners, but lack a coherent plan for expansion. Additionally, a retail giant like Amazon will always be there to give merchants a run for their money, so retailers will have to bring their “A-game” to compete. The only other brands I see operating online marketplaces at the same level are Walmart and Target, owing to their huge supply chain efficiency and resources in-hand to support such operations.
In my opinion, retailers will stand a better chance of achieving success in the online marketplace only if they operate on a massive scale. Most importantly, this is a long-term game that demands commitment, so retailers will need to be extremely patient in order to see favorable results.