Study: Opportunities for brick-and-mortar retailers in the local online marketplaces in Germany

Initiatives for Retailers

The heart of a typical European city is its marketplace. Goods are traded, information is exchanged, and social relationships are maintained. Here, economic life is played out when supply and demand meet. Today, a vibrant and diverse city center is key to its attractiveness — this applies to its residents and visitors. A cityscape is characterized by gastronomy, service providers, and retailers. There are over 340,000 sites of particular importance in the stationary trade in Germany, while in gastronomy, there are around half (180,000) as many locations.

Stationary retail shops in the city are under pressure, and their closures are occasionally referred to as “the death of the retail store.” There are several reasons for this trend: While initially the shopping malls that often attracted demand to the outskirts of the city, in the past ten years, it was primarily the Internet that has become the main competition for inner-city stationary retail. It’s not only retail itself looking for a solution, but the city and the municipalities are looking to promote local trade, therefore obtaining more attractive and livable city centers. Different measures are used to do so:

  • Regulations against settlement of “inner-city relevant assortments” on the outskirts of the city or on “greenfield sites”
  • Promotion of business settlements in the inner cities, including a suitable infrastructure
  • City marketing (promoting the city itself) and stimulating demand in stationary retail, for example through physical events in the inner cities or just traditional marketing.

Increasing digitization plays a role in the promotion of retail stores as well. That is why some chambers of commerce (IHK) offer training for retailers. Some cities and in some cases, the advertising associations of local merchants are trying to create visibility for their stationery offers on online channels to bind regional purchasing power. These initiatives have large bandwidth, including WhatsApp Groups and local online marketplaces. The corona-related store closures in parts of the retail industry have accelerated this development once again and led to a wide variety of initiatives.

This study by eStrategy Consulting includes numerous initiatives to promote retail in Germany and German-speaking countries. However, the study does not claim to be complete. Instead, the different approaches are just presented, categorized, described, and evaluated. On this basis, strategies and success factors are outlined for retailers and municipal actors.

Starting with a presentation of different digital solutions, the study begins with an overview of the initiatives. The basis for the following overview was the lists of the German trade association (HDE) with their initiative „Merchants helping Merchants, articles in the trade press, as well as interviews with representatives of different initatives. Also they take a look at the activities of established marketplaces and platforms like Amazon, eBay, and Zalando, who have also developed initiatives to support stationary retailers.

Non-transactional Approaches

Transactional Approaches

Basically, the initiatives can be divided into transactional and non-transactional approaches. Only a few initiatives provide a transactional solution, which means a “real” online marketplace, even if the term marketplace is often used as a synonym for all these initiatives. The non-transactional “marketplaces” can be divided into pure trade directories on one side, and so-called “online storefronts” on the other side. This refers to the assortment lists, which show a range of products of each dealer, but which can’t be bought online, only, in the best case, reserved. Most of these initiatives are local or regional projects, but there are also some Germany-wide initiatives. The transactional initiatives are divided into “local and regional online marketplaces” and into “vertical online marketplaces.” The latter serves for the delimitation of initiatives that focus only on specific assortments.

Non-transactional Approaches

In this study, we first consider the category of non-transactional approaches for retailers where the platforms do not offer a transaction option. The simplest solution here is so-called trader directories, explained below.

Trade Directories

Trader directories are simple online directories that detect and display the local distributor of a city or region. Thus, they offer dealers the chance to achieve visibility online. Most visitors to these trader directories will find contact data, opening times of those merchants, websites or online shops, and sometimes trader profiles. In most cases, a card search is available, which specifies the locations of the retailer.

Here there are not only Germany-wide platforms like Buy Local, Lokalkauf or Shopdaheim. There are also countless local initiatives, partly because of Corona, they try to tell the local population which retailers are open or how they can be reached.

Examples of trader directories (click to enlarge)

Review of the Trader Directories

  • Effort:
    For traders this directory represents only a small, mostly initial effort.

  • Dealer Benefits & Coverage:
    The directories often offer poor visibility on the city pages or additional portals – they’re within a relatively short range. This results in an even smaller benefit to the traders as the directories don’t achieve enough traffic. They are also not well-known and marketed poorly, making the directories unattractive to potential customers.

  • Timeliness:
    Trader directories are often outdated since most were set up several years ago and not updated regularly. That also results in a disadvantage for the dealer, as the contact information or opening times can change. Also, the lists are incomplete and don’t include new retailers. It is also worth noting that some of the trader directories were relaunched or reactivated due to the corona-induced lockdown, which means that the contents will be more relevant in these cases.

  • Functionality:
    The functionality is at best comparable to Google Maps and Google My Business, which would result in sufficient visibility for stationery retailers. However, the visibility on Google My Business often exceeds those of the directories.

So there’s not much benefit to the traders. So the question is, what incentives do these directories offer users and especially customers? To find retailers, customers use options like Google My Business more often, since they don’t have an overview of such small trader directories.

Online Storefronts (Assortment Directories)

Now, the so-called assortment directories are defined and evaluated. They are also called “online storefronts” and show trader profiles for a specific city or region (similar to the trader directories). They offer links to dealer websites or webshops are possible. Additionally, they provide a trader-specific digital assortment display. The basic idea is that the online assortment directory can inspire customers who view the retailer’s assortment. Then the customer can purchase the goods in the physical retail stores. Dealers partly also offer reservation functions to guarantee product availability on site.

Cities and municipalities sometimes offer “city vouchers” or even coupons for specific retailers, which customers can purchase via the websites. The voucher purchase stimulates local customer loyalty and binds the local demand. There are also many individual initiatives such as Findeling, ECE’s digital malls, Magdeburg Store, and “Lokalschatz Pforzheim.”

Digital malls are not really comparable to traditional assortment directories, as they form a professional exception, but they’re still worth mentioning here. The largest player in the assortment directories segment is the shopping center operator ECE, which operates such a page called “Digital Mall” for currently more than 50 shopping malls. In this project, the participating dealers’ assortments in the respective malls are shown in a shopping area on the mall pages. Thus, the customers are looking for their desired product from home, running an availability check, and then picking it up at the mall. Overall, this is a very professional approach, which will be extended to 90 other malls by the end of 2021.

Examples of online storefronts (click to enlarge)

Review of the Assortment Directories

  • Effort:
    The assortment directories require a great effort for the participating dealer regarding listing the goods and, if necessary, the updating of assortments.

  • Dealer Benefits & Coverage:
    Most sites offer only a minimal range, so the customer response and stationary retailers’ effect is likely to be very limited.

  • Timeliness:
    Some of the pages of the selection lists appear unkempt or outdated. Many projects have also been canceled in the past – including ones from renowned suppliers such as Allyouneed, Locafox or SimplyLocal.

  • Functionality:
    The functionality is reminiscent of price comparisons for local assortments, but these models lack the business case, leading initiatives to fail after the usual initial enthusiasm.

The assortment based approach is attractive if either the customers find their way to the dealer pages to be inspired by the local offers or otherwise the product will be marketed so that they are found by specific product searches of local customers, eg.via Google. However, those will be rare cases, which means that many initiatives, while created with much effort, only rarely achieve noticeable effects for participating merchants.

Transactional Approaches

Local & regional online marketplaces

This section considers transactional platforms on which local offers and the demand of a city, or region, are to come together.

While customers in some of these marketplaces can shop in all of Germany, other marketplaces limit the demand locally or regionally by only allowing pick up. An example of a transactional marketplace that delivers throughout Germany is the “Mein Heilbronn” store. Here, customers can order in the shop, by e-mail or telephone and then pick up the goods at the dealer, have it delivered in Heilbronn or even all of Germany. An example of local delivery only is provided by Flobee. However Flobee offers same-day delivery and thus a real added value for local customers.

Two-thirds of local online marketplaces are based on solutions from commercial providers such as Atalanda, Locamo or Flobee, which specialize in local marketplaces. This is no coincidence since the installation of a transactional platform is more complicated than a non-transactional solution. Many local initiatives are afraid of this investment. For this reason, the State of Mecklenburg-Vorpommern has, for example, provided its cities and municipalities in 2020 with its own solution, which functions as a directory of retailers and restaurants ( “Marketplace”) on the one hand, but also serves as a regional marketplace ( “Shop”).

As this ranking shows, even large cities whose initiatives are carried out in collaboration with an established commercial provider have not achieved enough traction.

Examples of local and regional marketplaces (click to enlarge)

Evaluation of the transactional local and regional approaches

  • Effort:
    The transactional approach to trade represents high technical complexity in implementation. Traders have to put a lot of effort into listing and maintaining. This approach hardly pays off, particularly for municipalities or cities, so the landscape is dominated mostly by external providers.

  • Dealer Benefits & Coverage:
    As with all previously mentioned approaches, the problem of reach and relevancy only happening at a local level persists in the transactional local/regional approach. Thus the dealers experience relatively short ranges. In addition, traction and attractiveness for dealers happen only in exceptional cases.

  • Timeliness:
    The timeliness is more present than at dealer and assortment directories as traders are forced to declare their current assortment and thus update their goods and shop regularly. An outdated product range would cause customers to purchase products online where the dealer is no longer available.

  • Functionality:
    Success factors include a commitment from the city (local Kümmerer), local marketing, and value or benefit for local customers, e.g. by Same Day Delivery.

The implementation of local online marketplaces represents a significantly higher cost than non-transactional solutions. For this reason, you are more likely to find solutions by commercial providers than local custom developments. For the dealers, the provision of listing and trading processes means a higher effort, which is not covered by the low general demand. In the past, this led to ambitious projects with prominent partners that didn’t work out.

Examples of failed platforms (click to enlarge)

„A true regional marketplace contradicts the basic idea of a marketplace and therefore cannot work, because it is purely about reach. All city-based online marketplaces have failed or will fail in the future.“

To learn more about digitization in the German retail sector, read our interview with Prof. Heinemann: Economist Gerritt Heinemann on how stationary retailers can finally move the needle on digitalization.

Prof. Dr. Gerrit Heinemann, Retail expert and economist

Vertical Online Market Places

In this study, we can’t overlook the marketplaces of composite groups or vertical aggregators. These are among the vertical approaches and tend not to be operated by cities or municipalities. The aim is not to promote the stationary trade in general, as in the previously mentioned categories, because trade associations usually only support the members or participating partners of the composite group. The fact that the stationary partners are no longer visible, but part of a centralized online model of the composite group could be a problem in this case.

Examples of vertical online marketplaces (click to enlarge)

A detailed analysis of composite groups and their digitization concepts was already made by eStrategy Consulting in a separate study and is available here.

Approaches of the Established Marketplaces & Platforms

The last category in the study is the approaches of the established marketplaces and platforms. These also provide stationery retailers and stores numerous ways to achieve visibility. By joining, traders mainly gain wide reach and supraregional, Germany-wide, and even partly global demand. However, the marketplaces also cater to the local retail trade’s needs by offering pick-up of goods locally.

As part of the partial corona-related lockdown, many established platforms offered special conditions and relief for stationary trade, which eStrategy Consulting has already assembled here back in April.

Review of Established Marketplaces & Platforms

  • Effort:
    For the merchants, the effort of account creation, listing, sales processing etc. on the established marketplaces is probably comparable to that of the local marketplace. However, we can assume that the established marketplaces also offer best practice in terms of sales processes and tools.

  • Dealer Benefits & Coverage:
    This is where the strengths of the established platforms lie. They tend to offer significantly better benefits for retailers with their wide reach. Not every local merchant will be successful on Amazon or eBay, but the chances are much higher than on one of the local marketplaces mentioned above.

  • Timeliness:
    Due to the high traction the established platforms must offer their users actuality and relevance. The customer benefits of the platforms are undisputed, even if they may not provide any regional or local filtering.

  • Functionality:
    A comprehensive evaluation of the functionality is not possible due to the different orientation of the above platforms. These platforms however, provide the benchmark for each use case.

The established marketplaces and platforms provide stationary dealers with different ways to support the local business. Though not all platforms aim to connect local supply and local demand, all the initiatives listed here have one thing in common. They at least strive to offer new opportunities and additional online demand to local trade. The big brands and retail companies have taken this approach for a while, and small stationary traders should not ignore these possibilities.

Company Profile & Contact – eStrategy Consulting

eStrategy Consulting helps clients use digital innovation to further develop existing business models and develop new business opportunities. We support the retail industry in the further development of omnichannel and Connected Commerce. Manufacturers, classic big box retailers, the trade real estate industry, and digital marketplaces and platforms are among our customers.

eStrategy Consulting covers the entire life cycle of digital innovation. We support our clients from the initial idea analysis to the solution development to market introduction. As concept developers, we embed into teams and work as implementation managers. We count on a blend of methods from the world of digital business and traditional business consulting.