Best Buy closes online marketplace

Discussion
Feb 25, 2016
George Anderson

Amazon.com made opening up websites to third-party sellers all the rage, with numerous others including Best Buy, Sears, Walmart, etc. jumping on the marketplace bandwagon. One of those, Best Buy, yesterday closed the U.S. marketplace it launched in 2011 after failing to achieve the types of results it expected.

When Best Buy first rolled out its marketplace, the company promoted it as a way for the retailer to make complementary products it didn’t sell available to consumers. Early participants included ANT Online, BeachAudio.com, Buy.com, Mambate, SF Planet and Wayfair.com.

According to reports, the Best Buy marketplace generated less than one percent of the retailer’s revenues on an annual basis in the U.S. Best Buy Canada will continue to operate its marketplace.

Image: bestbuy.com

DISCUSSION QUESTIONS: Which do you think is more likely, retailers opening or closing online marketplaces over the next several years? What are the keys to a successful marketplace?

Braintrust
"This is a blessing in disguise for Best Buy as the marketplace was, IMHO, inconsistent with the brand they have built in the minds of consumers."
"Not sure how beneficial the marketplace is to Amazon other than a little slice of revenue, more time on the site for visitors and a test bed of what products the company should add to its own offering."

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14 Comments on "Best Buy closes online marketplace"

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Joel Rubinson
BrainTrust

I was dubious about this when it was first announced. This is a blessing in disguise for Best Buy as the marketplace was, IMHO, inconsistent with the brand they have built in the minds of consumers.

Ken Lonyai
BrainTrust

Closing. Not sure how beneficial the marketplace is to Amazon other than a little slice of revenue, more time on the site for visitors and a test bed of what products the company should add to its own offering. So others trying to mimic them without the logistics and depth of product are probably fooling themselves when they try and jump on the bandwagon. Add to that the management issues of trying to craft a well-tuned, value-adding marketplace and the need to intervene when merchants act badly and it sure seems like there are better ways to use company resources.

Bob Phibbs
BrainTrust

Sorry, the answer to gaining retail sales and marketshare can’t be found by just adding an app or offering an online marketplace. You want to grow retail sales? Get back to basics and concentrate on the people. That still represents 90 percent of the magic of retail — not the next shiny object.

Keith Anderson
BrainTrust

Marketplaces have clear conceptual appeal to retailers: once the platform is built, a marketplace can hypothetically expand selection by orders of magnitude with very little marginal expense or inventory risk.

That said, building successful marketplaces is incredibly challenging. They’re inherently two-sided. A successful marketplace must attract critical masses of shoppers and merchants simultaneously, a chicken-and-egg problem that many find challenging.

Assuming an operator succeeds, they also have to build a continuous feedback loop between customers and merchants to sustain some standard of service.

My observation is that in most countries there are no more than two (and often one) dominant marketplaces for general merchandise, with some room for vertical niche players.

It’s a winner-takes-most scenario, and without a world-class marketing merchandising platform *and* logistical support, it’s very challenging to beat the established leaders.

Tony Orlando
BrainTrust

I agree 100 percent with Bob Phibbs.

Mohamed Amer
BrainTrust

Large retailers have little motivation to open online marketplaces. However, for the small retailer, this is a way to gain exposure (potentially improve top-line sales) yet at a cost of reduced margins.

A huge challenge is whether this approach builds upon or detracts from the in-store experience. If the latter, then this erodes management’s scarce resources and attention to what matters most: delivering exceptional customer experience.

We’re entering an era where consumers expect the seemingly contradictory: a technology-fueled, high-touch, back-to-basics retail experience.

Adrian Weidmann
BrainTrust

Shoppers don’t trust online marketplaces and with revenues representing less than 1 percent for Best Buy this lack of trust apparently translates to closed wallets. With invasive cookie and behavioral tracking, why would shoppers use Best Buy’s portal, or anyone else’s, when they are already using Amazon? Without active monitoring, you run the risk of damaging your brand image and credibility.

Jonathan Spooner
Guest
1 year 4 months ago

I can’t believe Best Buy stayed for this long!

Remember back in 2006 when the marriage of Toys “R” Us and Amazon blew apart and ended up in court? It was the same problem and the same outcome. Back in the early ’00s this was the retail strategy of note. “E-commerce enable every website, email, widget, MySpace page etc.”

The brick-and-mortar retailers were looking for inventory flexibility and another selling channel with higher traffic numbers than their own site. And Amazon was looking at a new marketplace that they had not entered yet and the retailer gave them legitimacy. Toys “R” Us played right into Amazon’s hands by giving them a trusted consumer-facing brand to slap around their site — conferring trust to the website. And Amazon just built their own toy business in parallel.

This Holiday season the toy segment was a huge piece of Amazon’s record-setting revenue. In comparison Toys “R” Us enjoyed a meager 2 percent lift in global sales.

Poor Best Buy. This holiday season Best Buy’s revenues declined a 0.8 percent year-over-year and same-store sales were down 1.2 percent. On Cyber Monday 2015, Amazon customers worldwide ordered more than 33 electronics per second from a mobile device.

Patricia Vekich Waldron
BrainTrust

I see more closing than opening. The idea of an endless aisle is good, but these marketplaces don’t deliver, especially when Amazon and TMall exist.

Craig Sundstrom
Guest

Can you have the latter without the former? I guess if you start out with a large enough group. Anyway, I think the general trend will be down, whether that’s straight down (all closings, no openings) or generally down (some openings but more closings). With Amazon, eBay and probably a few others I don’t know about, it’s difficult — and rather pointless — to try this if you don’t have something compelling to offer.

Arie Shpanya
Guest

When talking about marketplaces, it’s hard to compete with Amazon because they’ve mastered the essentials: a wide assortment and competitive prices. But one of the places where they could improve is product recommendations and discovery. With such a wide selection of products, introducing shoppers to new products would be an effective way to boost sales.

I think the marketplaces that will succeed will be the ones that can do something that Amazon can’t. Differentiation is key.

jean duchaine
Guest
1 year 4 months ago

Logical result. Best Buy is not legitimate as a marketplace, it offers no discriminating advantage. It tried to compete with a leader like Amazon in offering an under-copy.
Any challenger for winning has to think and imagine a different method; change the battlefield. Open a new way. Today, Amazon can sleep quietly with ancient retailers, as all prefer defensive strategies.

Charles Whiteman
BrainTrust

Retailers build loyalty when they have a “point of view” and a value proposition for their customers which is reflected in their assortment, their marketing, their web content, pricing, customer service, etc. The fact that everyone needs underwear doesn’t mean every retailer should offer it.

Marketplaces attempt to pick up marginal sales via organic and on-site search. These are customers who already know what they want and are just shopping on price. To the extent the marketplace obscure the retailer’s “point of view,” the retailer may be creating more damage than whatever incremental sales they pick up are worth. Looks like Best Buy concluded that this was true in their case.

Matt Talbot
BrainTrust

I think that retailers will begin closing online marketplaces as they continue to find value in brick-and-mortar locations. There are aspects of the in-store experience, including customer service, that cannot be replicated online. That being said, online channels can be very successful for some businesses and I expect to see the continued opening of online stores, although growth may be slower.

Many retailers who have traditionally done business online, including Amazon, are opening physical stores. Generally, I think retail trends will shift offline.

wpDiscuz
Braintrust
"This is a blessing in disguise for Best Buy as the marketplace was, IMHO, inconsistent with the brand they have built in the minds of consumers."
"Not sure how beneficial the marketplace is to Amazon other than a little slice of revenue, more time on the site for visitors and a test bed of what products the company should add to its own offering."

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