Marketplace to Be Focal Point for Newegg

In a strategy shift for Newegg, a B-to-C and B-to-B online retailer of computer hardware and software, the company will be making its Marketplace site its primary focus. Launched in 2011, Newegg Marketplace now is being counted to be the growth engine for Newegg. Why the shift for Newegg from being primarily a first-party seller to a third-party marketplace?

At the ChannelAdvisor Catalyst Americas conference in Las Vegas this week, I interviewed Sophia Tsao, head of global marketplace at Newegg, to learn that answer. Here are some of the highlights from that interview:

TR: Why is Newegg embracing its marketplace as the growth engine for the company?
ST: For the past 15 years, Newegg has had great success in the electronics, computer hardware category. We now have more than 50 percent market share in that category. However, our chairman and founder [Fred Chang] knew that Newegg could not stay in the same place without aggressively embracing change in e-commerce. We’re ready to turn Newegg from a retailer into a robust marketplace platform.

Along with the marketplace selling platform, we’re also involving many of our seller solutions to create an ecosystem. We have Shipped by Newegg offering fulfillment services; Service by Newegg; A+ Content Services to improve product listings (descriptions, images); Merchandising and Marketing Services (email blasts, affiliate partners, Google Shopping, social media exposure); and Return Service by Newegg (product returns). We want to provide a single, easy solution for sellers.

TR: How is Newegg making its marketplace the focal point of the business?
ST: We are now opening all product categories for marketplace sellers, whereas in the past we protected certain categories and limited them to sale on the first-party site. Every category seller is welcome to join Newegg’s marketplace as long as they meet our requirements. [Newegg is an invite-only platform.] We removed all category registration and brand registration requirements, especially for products that have a high market share on the first-party site (e.g., computer components).

TR: What are the requirements for merchants to sell on Newegg’s marketplace?
ST: There are three main ones. The first is that every seller must comply with Newegg’s 30-day satisfaction guarantee — customers can return any product within 30 days for any reason and get their money back. The second requirement is that sellers must meet a 72-hour window for fulfilling an order; otherwise the order is cancelled. And the third is that the seller must have a dedicated customer service team.

TR: Is there a sales volume requirement?
ST: We don’t require a certain volume, but we look at reputation. Our category and account managers profile sellers, looking at their ratings and reviews, their reputation in the industry, to see if they should get an invitation to sell on the marketplace.

TR: What are the product categories that are featured on the marketplace, and do you see this changing?
ST: Right now we have 17 categories that are open for all sellers, ranging from baby, beauty, automotive to hardware, including our very strong consumer electronics and computer hardware. The top four are computer hardware, consumer electronics, automotive, and home improvement. You can tell they are largely male customers, who are DIYers and tech-savvy. Anything related to technology will have a good opportunity on Newegg Marketplace. We want to position ourselves as the No. 1 marketplace for everything tech. That’s the selling point we’re communicating to merchants.

Currently we have 27 million SKUs from third-party sellers. By gross margin value, marketplace is really the growth engine for the company, consistently producing 40 percent year-over-year growth in sales.

TR: Where do you think online marketplaces are headed, and what’s your view on Amazon.com?
ST: It’s long been a debate at Newegg if we should view Amazon as a competitor, or do we need to find a way to create our own unique marketplace. The uniqueness is that we want Newegg to be known as the tech marketplace. We don’t want to focus on everything like Amazon does — the billion SKUs.

But the overall shopping experience, the convenience and level of service, we want to deliver as close to Amazon as possible. So for service level we view Amazon as a competitor. Amazon has raised the bar so high, Amazon Prime, for example. We have Newegg Premier, a customer loyalty program, that customers can get free three-day-or-sooner expedited shipping by paying $49.99 for the year.

At Newegg, we selectively picked a niche market and spent very aggressively on service level to embrace our customers. And our platform is invite-only. So Amazon has 2 million sellers; we have 20,000. Our sellers are tech-driven and committed to service. We promise our marketplace sellers commerce, content and community. And we don't charge them any type of fee other than commission on their sales. (Commissions range from 8 percent to 14 percent depending on the product category.)