Some eCommerce platforms may disappear in a year: S&P Global and RapidRatings forecast

Some eCommerce platforms may disappear in a year: S&P Global and RapidRatings forecast

11 large eCommerce sites are at risk of bankruptcy and default at once. According to analysts at S&P Global Market Intelligence, online retailers now have the highest median market probability of default among all sectors - 8.1%. Default in the next 12 months threatens such large players as Farfetch, ThredUp and Wayfair.

"The costs of online retail are on the rise and rising, and it's getting harder to build an efficient supply chain," says James Gellert, CEO of financial analytics firm RapidRatings.

According to him, problems with logistics and the change of the consumer paradigm from consumer to economic during the crisis only worsened the situation for eCommerce companies, but some players faced difficulties even before the pandemic. Now online retailers are forced to close stores and cut staff to cut costs amid economic pressure.

Take Wayfair for example. This site sells furniture and household goods online. Before the pandemic, it was selling 14 million items from more than 11,000 global suppliers. The retailer deliberately expanded the number of sellers in order to attract the largest possible audience. The problem is that Overstock, Amazon, Target, Walmart and many other large marketplaces also do. And Wayfair just can't keep up with all the competition.

Retailers that sell many brands and don't offer a unique product mostly compete on price, giving customers the best deals, Gellert says. Therefore, these companies, especially those that operate primarily online, face challenges in attracting and retaining customers.

“These retail models are powerful in that they have a diverse range of products, and they are independent of consumer preference for one particular brand. But the downside of this is that there is no brand loyalty,” says Gellert.

The result of this business model is a steady increase in customer acquisition costs, often at a loss of profitability. A survey conducted by Ipsos for Publicis Sapient and Salesforce in 2022 found that online retailers who compete on product numbers alone are twice as likely to report insolvency than offline retailers.

"You have to spend a lot of money to get customers, and it's very difficult to keep those customers if they don't have a truly unique product," summarizes Gellert.

This is why a number of eCommerce companies have recently opened offline stores. Physical retail can serve as an additional marketing channel to attract customers and diversify brands as competition increases. Allbirds, Warby Parker, Casper, the same Wayfair and The RealReal - all took the path of omnichannel development.

Another way that the store can go is to help brands improve the speed of order fulfillment. But there is also the issue of competition. Companies like Amazon and Target have already taken online order fulfillment almost to perfection, and they also offer in-store pickup. For smaller retailers who don't have access to resources like Amazon, it's hard to grow shipping to this level.

RapidRatings experts evaluated eComemrce companies based on their short-term and medium-term financial condition. They made their forecast indicating the risk of default within 12 months (Financial Health Ratings). The Core Health Score of companies was also taken into account, this is an assessment of long-term sustainability and operational efficiency. The ratings are based on a 100-point scale, where 100 is the best result and 0 is the worst.
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