South America is no stranger to large, dominant platform companies. MercadoLibre, one of platform stocks in PLAT – WisdomTree’s platform ETF, has multiple product marketplace businesses from car marketplaces to everyday goods. Its stock has surged past the $50bn market cap level in recent weeks due to Covid’s acceleration of digital behavior change.
Other large marketplaces, yet still private, also exist in different parts of the continent like Rappi, a Colombian-based marketplace for same-day delivery of a variety of goods, which has raised over $1.4bn.
As we have seen in the United States and in China, there is room for vertical specific marketplaces to exist in B2C. In the US, we’ve seen unicorn marketplaces in the verticals of luxury goods (TheRealReal), sneakers (StockX and GOAT), pet food (Chewy, albeit it’s linear and not a marketplace), groceries (Instacart) and others. We’ve also seen a niche marketplace for handmade goods, Etsy, explode and nearly triple their valuation in the past few months – also a stock in PLAT.
Unfortunately, US-based retailers, many of whom are going out of business, realized too late that they needed to embrace a marketplace business model. A few South American retailers have successfully made the transition from linear to a marketplace business model (see the case study for more information highlighting their journey).
Magazine Luiza, Lojas Americanas and Centauro are public companies and when you read their annual reports, they break down 1P versus 3P sales and their GMV. Reporting on these KPI’s are strong signals to the market that these are marketplace businesses and not just a retailer with linear eCommerce offerings. Magazine Luiza and Americanas are generating between $3-6 billion in annual GMV through their eCommerce/marketplace channels. Centauro is smaller and focused on sporting goods and is generating <$1bn in digital revenue, including marketplace sales.
Given the dominance of marketplaces in the general merchandising product category, the focus for aspiring marketplace winners should focus on niches.
Niche, vertical-specific marketplaces, as outlined in our report, still present viable M&A opportunities for a traditional retailer, except for sporting goods, for example, which has already seen Centauro take a build from scratch approach and Magazine Luiza acquire Netshoes.
Every marketplace needs digital demand. Large retailers have an advantage with their existing eCommerce demand. If a large retailer is doing $10 billion revenue but only has $100 million of eCommerce – it’s going to be hard for the retailer to convince third-party sellers to list their inventory on the retailer’s site. Scaling eCommerce revenue is a key dependency to building out a broader base of supply from third-party sellers. If a retailer already has a robust eCommerce business, that provides a big advantage. If eCommerce is less developed, more capital will be required to make up for lost ground. By focusing on a specific product segment, it’s easier to capture enough digital demand in that segment to convince third-party sellers to list inventory on your site.
Every retailer is unique and has different priorities when it comes to marketplace urgency. Investing in a marketplace can still provide synergies to a retailer’s core business in the immediate term by either:
Filed under: Platform Innovation | Topics: