Gen-Z is Leading an Evolution of Marketplaces

There are those who would argue that Generation Z (Gen-Z) is the ‘future of marketplaces and e-commerce’. Those people would be wrong.

Gen-Z is not the future, they are very much the present — and marketplaces, a crucial sub-sector of e-commerce and an exciting opportunity for savvy investors, must begin to tailor their platforms toward this generation sooner rather than later lest they miss the proverbial boat.

Image Credit: @emmachamberlain

Generation Next: Now

One could be forgiven for believing that Gen-Zers are effectively just Millennials who actually know how to use TikTok and therefore one marketplace should serve all.

In reality, it would be a strategic error to assume that Gen-Z is just an extension of the previous generation, rather than a unique one with their own experiences, beliefs and values. While we will leave a demographic analysis up to the likes of IBM, we will discuss how Gen-Z is shaping the future of shopping, and how marketplaces must respond in return.

I’m going to assume that, by this point, we all know what time period defines Generation Z. What is less obvious, however, is the power this generation holds.

Outsized Influence

According to McKinsey and Company, Gen-Z spends $22 billion directly and influences nearly $300 billion in household spending indirectly. This may come as no surprise considering this demographic currently makes up 20% of the world’s population and 40% of consumers in the US alone, Business of Fashion reports. By 2030, Gen-Z will make up the largest consumer segment worldwide, so it’s only natural that marketplaces should look to this demographic both now and in the future.

Keith Neidermeier, a Clinical Professor of Marketing at the Kelley School of Business at Indiana University, sums it up best by describing Gen-Z as “not so much little kids with pester power anymore as they are consumers that might not be spending their own money, but are increasingly making their own decisions.” This leaves marketplaces with the task of determining how to attract (and secure) this influential generation’s dollars.

The Marketplace Market Opportunity

All aboard the Gen-Z train — next stop: Marketplaces.

One of the many defining characteristics of Gen-Z is that they are not loyal to any one brand, with only 16% shopping at a single store for their fashion needs. This shopping habit makes the marketplace model particularly attractive for this demographic, as it allows young consumers to explore numerous brands and products simultaneously.

The Business Model

Furthermore, the marketplace business model itself is stable and low-cost, as it allows for consumers and sellers to absorb much of the expense that would otherwise be incurred in a typical consignment model, explains Simeon Siegel, a retail analyst and managing director at BMO Capital Markets.

The Upside

However, marketplaces have upside for consumers and sellers as well — they create new opportunity for discovery in markets that are typically fragmented, with high competition and pent-up demand, creating channels between entirely new audiences and brands.

The Return

While the competing (and increasingly popular) DTC model may increase margins for brands, customer acquisition is often very expensive. Marketplaces carry their own costs, as they cut margins by charging a clean commission for each sale made on their platform. In turn, however, they offer exposure and a channel of distribution without the challenges of wholesale — an incredibly attractive value proposition. This is particularly valuable for Gen-Z who prefer this method of discovery to begin with.

The A to Gen-Z of Marketplaces

What does Gen-Z want out of a marketplace, and how is it different from the wants and needs of Millennials? That is the question we’ll address here.

Millennial Marketplace Must-Haves

In the past, Millennials have focused on the more tangible sides of marketplaces. The typical must-haves of a Millennial marketplace include:

• Rapid (ie. 1-day) and free shipping
• Curated selections of offerings that don’t leave customers feeling overwhelmed
• Omni-channel Integration: Specifically, features such as BIPOS (by online, pick-up in store) and the like
• Seamless delivery of retail essentials such as value, quality and accessibility

For Gen-Z, That’s All Just Table Stakes

Having grown up in the digital age with an endless selection of brands and platforms, the delivery of retail essentials is expected and considered the norm. If marketplaces hope to differentiate themselves in the Gen-Z era, they must engage in what is now commonly referred to as social commerce.

It’s All About Social Media. Even When It’s About Shopping.

It is a ubiquitous fact that Gen-Z loves social media, and yet, it is still not being properly utilized to create compelling shopping experiences for this generation.

Long gone are the days when a marketplace or brand would simply be expected to interact with social media platforms. Instead, Gen-Z are looking for marketplaces to become the social media platform.

The Gen-Z Marketplace of Tomorrow: Today

Broadly speaking, successful Gen-Z marketplaces will boast the following characteristics:

Peer Affirmation

Gen-Z seeks to leverage the influence of friends and family through likes, shares and recommendations. These young shoppers place high value on the opinions of their peers (influencers included) and use them to make purchasing decisions. For Gen-Z, peer affirmation is an essential part of the consumer journey, and marketplaces need to be sure to facilitate that through UGC, tools that solicit immediate feedback, likes and recommendations, and consistent engagement with their audiences and communities. Further opportunities for innovation include allowing friends and influencers to curate product lists for their peers.

Serendipitous Discovery

According to Cassandra Napoli, a strategist at trend forecasting agency WGSN, “the 2020’s for Gen-Z is really coming to be about serendipitous discovery.” The process of discovery is a critical stage in a young consumers’ shopping journey, with more than 82% of Gen-Z in the US making purchasing decisions during the ‘inspiration stage’ of their shopping experience, according to a 2020 report by BCG. This is why Gen-Z find such success on social media platforms such as Instagram and TikTok, as they promote brand and product discovery through peer recommendations, curated discovery feeds, influencer partnerships, and more. Successful marketplaces will find ways to replicate this customer journey.

Thoughtful Curation

A 20 year-old cited in the GCA Insights Sector Report is quoted as stating that she “would like it if [marketplaces] increased their offerings but made it easier to find things you’re looking for.” Garmentory Chief Executive Sinul Gowda agrees, saying that “every year I see five to seven attempts at building a marketplace, and they fail. What they don’t understand is the key ingredient: curation.” Gen-Z want a plethora of options, but distilled and curated in a thoughtful manner that makes the aforementioned ‘serendipitous discovery’ simple.

Community Driven

If the above attributes are all successfully executed, marketplaces should be able to generate a sense of ‘social community’ on their own platforms. Poshmark is an excellent example, having succeeded amongst Gen-Z largely “due to the fact that they double as a social network, which they claim is helping increase usage and engagement. Users not only buy and sell from one another, but also engage in interactions through comments, shares, follows and negotiations on purchases.” In building destinations to discuss, review and buy goods, marketplaces can begin fostering meaningful communities.

Who’s Doing it Right?

A report by Andreessen Horowitz establishes the fastest growing marketplace categories by ‘year over year growth’ and ‘number of companies per category’ as: celebrity engagement, food & beverage, streetwear, beauty and fashion.

Furthermore, a16z finds that the top 10 growing marketplace companies are growing at a top rate of 5x year over year, reflecting a positive future for the marketplace category as a whole. In fact, many of the fastest-growing companies fall into the aforementioned categories of celebrity engagement, streetwear and more.

A few examples of these marketplaces include:

• FAIRE: A wholesale marketplace for boutique retailers to find and purchase unique merchandise from local indie brands.
• Cameo: A video-sharing marketplace where fans can book personalized shoutouts from their favorite celebrities.
• GOAT: A peer-to-peer marketplace of buying and selling authenticated streetwear and sneakers.