Foreword

I’ve decided to release this earlier than what I had originally planned, its verging on the longest article I have done since University and while reading back through the first few sections its already totalling in excess of 10,000 words. So I’m releasing this beast in more manageable parts, for both me and you.

Over the next few days and weeks, I will be exploring the possibility of Tesco launching a ‘Tesco Direct Marketplace‘, to potentially rival that of Amazon (and eBay and anywhere else for that matter). I’ll be looking at the options that Tesco have available to them and what plus points they can take from their rivals and also which pitfalls to be careful of.

Its not going to be light on concepts, as with the possibility of a new platform. I am seeing this as a chance to re-write the whole idea of a Marketplace and evolve it further than what has been done before. It comes the potential to make a success we have not really seen from a retail giant, but it also has the potential to become a mess and land the company in an awkward position publicly and possibly financially.

Introduction

2010 was a really interesting year as a by-stander, eBay has made more steps towards taking on Amazon directly (single styled listings etc), Amazon had a stab at eBay suggesting to sell granny’s unwanted lamp she had a Christmas present on Amazon (rather than eBay, amongst other smaller things), Amazon had a stab at Tesco by launching food products and Tesco responded almost immediately with a direct stab back at Amazon with a PR release that they were to be taking on Amazon with a new marketplace.

While all this has been going on Play.com have been relatively quiet and literally cleaning up, a recent satisfaction poll have them ranked right behind the two Amazon’s in third place beating the likes of John Lewis, Apple, M&S and so on…

However Play.com isn’t going to be the focus of this article, what I am going to be doing is exploring the idea of what could be done and how I would suggest its tackled, if Tesco was seriously considering launching a new marketplace to rival Amazon.

I’ll warn you now, I am expecting this article to be in the realms of thousands of words, I have even been thinking I could use this as a base for a dissertation, its bound to end up in that scale of coverage, although having never completed one and never having received any outline on how to format one, I feel I may be mocked for even suggesting this.

Note: If you have any comments I am always humbled to receive feedback, see the reply box at the bottom of the page.

Lets take a look contenders

Before we can progress we need to take a closer look at the two contenders in this fight. These are two heavy weight fighters of stellar proportions, whom both have obscenely deep pockets to dig into and a grit to make even the great Mohammed Ali run scared.

Amazon

Amazon is synonymous with quality, speed and trust. You slap anything on Amazon and the buyers feel extremely reassured by that Amazon logo alone. Half the time I am sure that buyers do not really know whom they are buying from, as they assumed that the vast majority of the time its directly from Amazon themselves.

With Amazon launching their fulfilment offering ‘Fulfilment By Amazon’, also known as FBA, their Amazon prime customers really do not see any difference in cost of shipping, nor really any great degree in despatch times, as its all being despatched from their own warehouses.

Lets not forget that Amazon’s original business plan in 1994 scared the daylights out of investors at the beginning of the dot-com boom, they were literally the only one that had a decade long plan, where-as everyone else was measuring in months, Amazon took the view that it takes years to bring an business idea such as theirs to fruition, just look at them now, its only just begun.

Starting in 1994 and launched on-line in 1995, Amazon for me is one of the first choices of marketplace I go to, in fact I rarely go elsewhere for my book buying addiction and since receiving an iPad  as a bonus pressy (see article here), the one click buying of books for the Amazon Kindle reader App,  has my bank account running scared.

Books and other media are a symbiont of the Amazon brand, literally if I think of a book, I think Amazon and I am not alone in this with Amazon, I believe the general Internet population are of the same line-of-thought, its almost second nature, a preprogrammed thought pattern, Book = Amazon.

I remember preparing some presentation notes on Amazon and the differences between Amazon and eBay, it was really quite a trip back, while remembering that Amazon started off with a similar start as eBay, sporting an auctions offering for merchants, but it never really caught on as eBay even then was creaming it. So Amazon launched a new fixed price marketplace called zShops, its the spin off from this, which we know today as ‘Seller Central’.

zShops was faded out, basically I believe because it was crap (interface and no way of easily creating new product), but it did work and was bundled up into what we know as Seller Central and is actually a very simple and broad system to use.

I could go off into a bender on the Amazon Seller Central platform here, but for now you need to be aware that its similar to eBay as in you are able to create new inventory records and sell on Amazon.

Amazon is an interestingly flip to Tesco, as you’ll read shortly, Tesco have a lot of the off-line bases covered, inversely Amazon have a lot of the web bases covered, a quick brain-dump on thier channels:

1. Amazon main and international sites
2. Amazon Prime (listed separately as its genius)
3. Own branded product range, named Pinzon
4. Javari
5. Endless.com
6. Amazon Web Stores (AWS)
7. A9 (believe this to be Research & Development)
8. Fulfilment by Amazon
9. An affiliate program of epic scale
10. The Amazon Kindle
11. ‘Amazon payments’ a payment processor (due to the UK in May?)
12. And a whole host of ‘cloud’ based offerings & web services

And for sales, we’re talking billions, the figure I could find from wikipedia was $24.5bn in 2009, I could not find any quoted figures for 2010, a rough stab would be at the £30nb or more.

A side note, the Amazon logo

Now I’d love to say I realised this, but it was a in a discussion with a client, notice the arrow below the A and Z, We do everything from A to Z? Makes sense now, I never spotted that.

Tesco

Tesco isn’t to be shunned at all in this fight, these are remember, the retail giant of the UK and by a massive margin too. Using the figures from wikipedia, they had a market share of 30.5% in Dec 2009, ni-on double that of ASDA with 16.9%, Sainsburys 16.3% and Morrisons at 12.3%.

In 2006 Tesco launched ‘Tesco Direct, their public strategy is quoted as:

In 2006 we launched Tesco Direct , a new online and catalogue non-food offer, with over 12,500 products available online. Next day delivery is standard for small items with a unique two-hour delivery window. We issued 11.5 million catalogues last year. The popularity of our in-store Direct desks, which are now in 231 stores, continues to increase as more customers order and collect items from their local Tesco. We plan to add clothing to our online offer later this year. To find out more visit www.tesco.com/direct

I found an interesting statement on the Tesco Plc site for the year ending 28th Feb 2009, indicating that while they made an opening loss of around £22M, they were 2% up in direct comparison to UK trading profit.

The article is here and I have included the extract below

Increased productivity and good expense control enabled us to maintain solid margins and deliver good profit growth despite these challenges, whilst also absorbing initial trading losses totalling around £22m on Tesco Direct. After these costs, UK trading profit rose 12.7% to £2,381m (last year £2,112m), with trading margins at 6.2%, including TPF, slightly up on last year. On a 52-week comparable basis, UK trading profit rose 10.7%.

If you look further around thier Plc site, then some truly stunning numbers are publicly shown, I dribbled when I read these numbers, they have a Non-food sales figure of £13.1 billion, yes billion for 2009/2010. After the Christmas we just had, this has to be closer to the £15bn mark.

I could not find any published figures on the sales volume for the Tesco Direct site, an guess that the site takes about 2bn, with the majority of sales being made from their main site or the other two sub sites for clothing and entertainment.

Tesco Outlet on eBay

In 2008 in partnership with Trojan Electronics, Tesco launched on eBay as Tesco Outlet, I know this as I was the person that trained the staff and the two companies on the software they are using to launch to eBay with. As Trojan Electronics is a refurbishment house, it made great sense for Tesco to leverage the refurbishment channel and sell the goods direct (well indirectly, but its far superior and more lucrative for them this way).

In October 2010, on eBay alone, Tesco Outlet according to Terapeak, scored in the region of £370K of sales on eBay, £531K in November and £488K in December, although the sales for the first few days of the year are pitiful in comparison, I can only assume that someone forgot to launch a sale.

With the £13.1bn worth of non-food sales, then you have to expect some broken kit, most of which ends up in refurbishment houses such as Trojan, however not all ends there are can traditionally retailers such as Tesco get done-over on the pricing of kit, this was actually a shrewd move by them that year, although I am pretty sure that this was started by the asset recovery sections on the Tesco Giant, rather than being initiated at Board level; Maybe its what has given them the taste to take on Amazon?

Tesco Sales Channels

Tesco know they need to go multi-channel and have been busy, what a set of channels they have, a quick brain-dump on these are:

1. Retail Super Stores (food)
2. Tesco Metro/Express
3. Tesco Extra & Homeplus
4. Catalogues
5. Telecommunications (Tesco Mobile)
6. Tesco Finance
7. Tesco Direct Site
8. Tesco Clothing Site
9. Tesco Entertainment
10. Tesco Outlet on eBay
11. Club cards (noted as a separate channel on purpose, you’ll see why later)

Note the lack of Amazon here, they could have easily ported their goods on to the platform, but never did. I wonder why? But ‘Holy Cow’, these peeps have more channels and fingers in pies that one can shake stock at. Amazon needs to be scared, if its off-line, Tesco have the ALL bases cover and soon maybe, online covered more thoroughly too.

The Contenders Summary

Some 1600 words in and I’ve not even got to the juicy parts yet, but without this understanding of the two marketplaces above, we cannot compare the two together. I will not just be comparing these two either, I will be pulling in the good and bad points from other market places too to give a fuller picture.

eBay has never to my knowledge declared war on Amazon and inversely I have seen Amazon wave two fingers at eBay. I always expected for a third party such as Microsoft or Google to get in on the fight, perhaps Amazon see Tesco as easy prey, maybe now Tesco see Amazon as easy prey.

These two companies are giants in their own arena’s, it was not going to be long until the two bumped into each other and this really has the makings of something on an epic scale.

What ever happens this is going to be a battle of epic proportions and I really do not know who is going to win in the end, if either of them. But thats not the point of this article, what I am now going to explore is how Tesco can make a Marketplace to rival Amazon. Its not going to be easy.

Your Feedback

So, I’ve primed the background to these giants, one an off-line expert, one an on-line expert, who is your money on and why?