Inside Best Buy Canada's New Marketplace Initiative

By Matt Pillar, chief editor

May 2016 Innovative Retail Technologies

How Best Buy Canada is letting its customers define their experience with the brand and expanding its e-commerce market share along the way.

That Amazon is the single most disruptive force in retail since the rise of Walmart is an obvious understatement. From the consumer’s perspective, the e-commerce goliath’s revolutionary approach to product selection and fast shipping has set a standard that few — if any — merchants can match. If that sounds like an overstatement, consider that Amazon captured 38 percent of 2015 holiday e-commerce spending, the equivalent of the next 21 merchants behind it.

Amazon is the consumer’s e-commerce hero by virtue of its minions, the subordinate merchant heroes it employs to execute on its aggressive consumer promise: more breadth, more depth, more competitive pricing, and faster to the buyer’s door. That’s the motivation behind the marketplace model, which enables those third-party minion merchants to off er new and used items alongside Amazon’s own offerings and allows customers to buy those items directly from the third party. How important are its minions to Amazon? Marketplace sales accounted for more than half of Amazon’s 2015 holiday haul. They’re that important.

The importance of marketplace sales to Amazon was underscored by a July 2015 study conducted by eMarketer. Asked where they began their online shopping journey, nearly two-thirds of digital buyers in the U.S. said they started with marketplaces like eBay, Amazon, or Etsy, where they could search through a wide variety of goods from various sellers.

While many retailers have been attempting to replicate the marketplace model on their own e-commerce sites for the past decade, it’s really catching fire today. The concept has become more feasible, thanks in part to some readymade software packages that do the heavy lifting for the merchant.

Marketplace Opens An Underserved Market
There is a tremendous opportunity for e-commerce in Canada, says Best Buy Canada Senior Vice President of E-Commerce, Thierry Hay-Sabourin. “The online opportunity here is underserved because too few Canadian retailers have embraced e-commerce,” he says. In fact, 55 percent of Canadian merchants with five or more physical stores don’t yet have e-commerce sites. Because the Canadian market is so underserved, much of the e-commerce activity conducted by Canadian consumers is happening south of its border. In 2014, some 40 percent of Canadians’ online transacting was conducted with foreign — primarily U.S. — e-commerce sites.

Hay-Sabourin knows the relative immaturity of the Canadian e-commerce market is only temporary, so he and his team at Best Buy Canada are moving quickly to grab market share. The marketplace model is central to their strategy. The retailer launched its first foray into the model in February, first introducing a few hundred third-party SKUs to its e-commerce site, then a few thousand. The concept is simple — leverage third-party sellers to quickly expand the depth and breadth of its assortment, win in the segments presently underserved by Canadian retailers.

To Build Or To Buy?
Best Buy Canada is one of the largest retailers in the country, both online and off . Its e-commerce site hosted 250 million visits in 2015, which is considerable for a country of just 35 million residents. The retailer is recognized perennially as an e-commerce innovator by the Canada Post E-Commerce Innovation Awards program. On the ground, its more than 190 strategically placed physical locations ensure that some 80 percent of the population is within a fifteen-minute drive of a store. So, when it came time to develop its marketplace model, Hay-Sabourin had a choice to make. He could attempt to marshal his company’s resources, or he could outsource the project to a new breed of SaaS providers laser-focused on developing online merchant marketplaces.

“To build was certainly an option for us,” says Hay-Sabourin, “but there’s a lot to the model and complexities associated with the type of experience we wanted to create for our customers. To do this in-house could have taken years of development and trial-and-error.” Even after the model is built, maintaining the infrastructure to manage hundreds or thousands of third-party merchants internally would require incredible resources. Instead of building its own proprietary solution, the company contracted with SaaS-based marketplace solutions provider Mirakl in 2015. The vendor’s platform allows third-party merchants to connect to Best Buy Canada’s e-commerce platform and manage their own products, pricing, and assortment, without heavy lifting on the retailer’s part. Those sellers are encouraged to engage through a simple process at BestBuy.ca/marketplace.

The most daunting challenge Best Buy Canada faced, in fact, was the cultural mind shift necessary to get the project off the ground. At first blush, allowing third parties to sell their goods on your site — using their own pricing and assortment discretion — seems like an exercise in a loss of pricing, inventory, and customer experience control. But Hay-Sabourin says that winning executive team buy-in for the model was a straightforward process of demonstrating the value to all parties. “Customers win because they’re granted access to a larger assortment and the more competitive pricing that results from the model,” he says. “Our sellers win because they don’t need to sustain the investment required to be successful in e-commerce. They reap the benefits of our investment. Our shareholders win because it’s a profitable model.”

As profitability goes, the model might not be as attractive to luxury retailers as it is to those selling on price. “Price alignment is important. In the retail industry, price is table stakes, which is why we have a lowest price guarantee,” says Hay-Sabourin. The mechanics of the marketplace drive the best possible price at Best Buy Canada, he says, which supports the retailer’s price perception because there are multiple sellers competing for the buy button. Inviting multiple sellers to the table also enhances the Best Buy Canada assortment in a way that serves both the “long tail” and brand-new, niche products. “By enabling sellers to reach our customers, we can ramp up new product offerings very quickly and improve our speed to market while minimizing our exposure to unproven inventory,” says Hay-Sabourin.

Built-In Control Of Customer Care
Perhaps the most concerning aspect of the marketplace model is the risk associated with putting the care and service of your customers in the hands of third-party merchants. With the Mirakl platform, seller on-boarding is handled autonomously. When a seller signs up, however, the retailer has discretion over the curation of the seller’s catalog. The seller might have 50,000 products available, but the retailer can choose to offer just a few thousand of them on its e-commerce site.

With curation handled, the retailer can set standards for quality control. Speed of fulfillment expectations and customer service levels are key to an e-commerce merchant’s brand favorability, so measures must be taken to ensure the myriad of third-party merchants allowed to sell on your behalf adhere to your standards. Mirakl provides Best Buy Canada with the technology and tools necessary to add new vendors, says Hay-Sabourin. “We don’t compromise on fast delivery, order accuracy, price, or customer satisfaction, so we’ve been rigorous in ensuring that the merchants we’ve on-boarded will exceed these standards and exceed the expectations of our customers.” If the seller refuses two orders in a row and gets a negative evaluation, for instance, the system can be configured to automatically suspend the seller and trigger an audit process to determine whether or not it deserves a second chance.

The Mirakl platform also allows Best Buy Canada to precisely measure customer satisfaction with each seller. Its merchant customers can use that information to manipulate the algorithms that determine who will win the buy button. Put simply, high-performers are given preference. “We can remove sellers temporarily or permanently if their service levels are below our minimum standard,” says Hay- Sabourin. Those tools are important, because shortly after Best Buy Canada announced its forthcoming marketplace, hundreds of sellers came knocking.

Extending Assortment To Expand Market Share
Hay-Sabourin says that in recognition of the underserved nature of Canadian e-commerce customers in several segments, Best Buy Canada has been strategically adding noncore products to its assortment for the past several years. Luggage, furniture, baby gear, and even outdoor equipment and sporting goods have made their way onto BestBuy.ca. “The marketplace is a means of expanding that range, and it is generating a lot of excitement and energy in the company,” he says.

Next, Hay-Sabourin and company are tackling the task of allowing customer returns from third-party sellers to be returned in Best Buy Canada stores, which he says will mark a first in North America. “Shoppers that buy online appreciate and value the ability to return products to stores, so much so that a significant portion of our online sales depend on our flexibility to do this,” says Hay-Sabourin. It’s a particularly relevant concept given Canadians’ aforementioned proximity to the retailer’s physical stores. The retailer plans to support that convenience through fees paid by its marketplace sellers, who also appreciate the sales lift they’ll enjoy by assuring shoppers they can return unwanted merchandise to the store.

“When you look at it objectively, it’s clear that the marketplace concept is a natural continuation of omni-channel retail.”

Thierry Hay-Sabourin,
Senior Vice President of E-Commerce,
Best Buy Canada

While the marketplace initiative at Best Buy Canada is relatively new, Hay- Sabourin says they’ve planted the stake firmly in the ground. “When you look at it objectively, it’s clear that the marketplace concept is a natural continuation of omni-channel retail,” he says. That natural continuation is going strong in Canada, where the e-commerce opportunity for both sellers and marketplace operators is ripe for the picking.

REDEFINING CUSTOMER-CENTRIC E-COMMERCE

Originally, omni-channel retailing was about click and collect and digital widgets in the stores. Consumer expectations have changed all that. More important than an ability to order online and pick a product up in a store, the product has to be available to sell in the first place.

Enter Mirakl. The company was founded just four years ago, but more than 70 retailers have already adopted its marketplace model. That’s likely because the vendor developed its SaaS-based software solely to serve the new expectations of e-commerce consumers. Cofounder and CEO Adrien Nussenbaum sums it up plainly. “The way consumers expect to shop the endless aisle, their price transparency expectations, and their ability to choose the best supplier by rating with the best shipping options are powerful forces,” he says. Those forces create a compelling argument for the marketplace concept adopted by Best Buy Canada (see accompanying story).

Many retailers, however, feel as though that ship has sailed and that they’ve missed the boat. Instead of trying to catch up, they concentrate on what they’ve always done and choose to play defense. “That conversation resonates with senior stakeholders because there’s a keen awareness of the need to expand product breadth and depth, but most realize they can’t do it on their own.” Some attempt a drop-ship model, working directly with many vendors and manufacturers. That approach often reveals itself as inflexible and unscalable.

Nussenbaum says that today, retailers are realizing that because shoppers can so easily have access to anything they want from anywhere in the world, customers are more involved in defining what the brand stands for. He offers a compelling example. “I have two daughters, one of whom loves skateboarding,” he says. “When we moved to the U.S. six months ago, I discovered a great national sporting goods co-op that looked as though it would serve my search for skateboarding accessories well.” Nussenbaum visited the merchant’s site, where a search for skateboards yielded cell phone cases and backpacks. “The same search on Amazon presented me with 53,000 products, including the best collection of skateboards sold by specialized skateboarding stores.”

Nussenbaum’s anecdote poses the question that sits at the root of his point about true customer-centric merchandising redefining retail and the marketplace model he advocates. Who defines what the retail brand stands for, the retailer or the customer?