Earlier this week Crate and Barrel announced that they have added a marketplace to their business.

Home furnishings retailer Crate and Barrel today announced the launch of its new “Crate and Barrel Exclusive Marketplace”, a highly curated marketplace offering consumers a broader selection of products based on Crate and Barrel’s merchandising expertise. Available via the company’s e-commerce site, crateandbarrel.com, the marketplace now offers customers an extended aisle of unique product. Source

I understand the reasoning for adding a marketplace to any ecommerce business. It provides greater selection to customers. The sourcing of select brands can be done at a lower cost in comparison sourcing it directly from brands / manufacturers. Opportunities to create more revenue are created as your selection is increased.

This makes me think back to what Brian Walker mentioned about Amazon’s decision to add the marketplace:

When Jeff Bezos announced to his Amazon staff his concept for the Amazon Marketplace in November 2000, many people — inside and outside Amazon — thought he was crazy. Amazon was inviting in other sellers — individuals and merchants — to compete against Amazon’s owned inventory on Amazon.com.  As full price merchants were added in categories such as consumer electronics, apparel, and baby products in the early 2000s, the head shaking continued. To paraphrase, Jeff Bezos claimed this was about “the world of perfect information.” Customers are going to find the lowest price online if they really want to, and they should be trained to find it on Amazon. Maybe Amazon could grab a piece of the pie along the way. Forrester

I think however there are a few things to be kept in mind before adding a marketplace to your existing ecommerce business:

Your marketplace partners needs to be carefully vetted to ensure that your experience is not adversely affected. Merchant scorecards that quantify delivery rates, service delivery, customer feedback is very important.

Your business must have good unit economics as take rates (the percentage that sellers pay for a successful sale) can negatively affect your bottom line. This is critical in order to ensure that your marketplace is sustainable as your take rate must in most cases cover your logistics costs.

Marketplaces have the ability to severely impact growth of an ecommerce business as when you compete against an incumbent like Amazon or Alibaba – your finances could be placed under huge strain. I believe strongly that this was a factor in the accelerated negative growth of Rocket Internets most mature ecommerce businesses.

Crate and Barrel is part of a best in class ecommerce group Otto. Otto has a solid strategy to ensure that their group of businesses has a profitable slice of ecommerce. I believe strongly that this move to a marketplace is to hedge their business against Amazon’s increasing dominance. It will be interesting to note whether the marketplace products is only sold on Crate and Barrel (which I expect).

The created marketplace needs to be able to drive and grow traffic to the products of their marketplace business. This is one of the biggest concerns I have when new marketplaces are formed. If your products is in a vertical that Amazon has products and sellers on it is very difficult to impact their SEO or traffic to ensure that your marketplace can be useful for partners.

Does marketplaces make money? This is a debatable question as if you look at Amazon, Alibaba they all have other flywheels that generate significant revenue / profit.

So what are your options other than a marketplace for continued growth? I firmly believe that an online to offline strategy is an option for large ecommerce businesses to grow their market share without the need of third parties.

Time will tell us if the Crate and Barrel marketplace is a success.