With customers pulling back spending following months of financial pressure, and with the increasing cost of doing business dragging down any increased spend captured, retailers are beginning to feel the hurt. On Friday morning, baby-goods retailer Baby Bunting revealed a 51 per cent drop in net profit during FY23, though sales ticked up 1.7 per cent. During the same period, its cost of doing business rose to $161.7 million, up 11 per cent on the prior year.Acting CEO Darin Hoekman said that the business is moving to focus on lowering its cost of doing business and managing its working capital to better align with the difficult trading environment it sees ahead for FY24. “This year has had some particularly challenging elements to it, with the cost of doing business pressure on the rise, consumer behaviour normalising to pre-Covid levels, and increases in mortgage rates,” Hoekman told investors. “We’re watching the consumer and the impacts around cost-of-living, but given the continuing economic uncertainty FY24 guidance cannot be given at this point in time.”MarketplaceOne of the steps the business has taken to drive growth in a tough economic climate is the launch of an online marketplace. Announced earlier this month, Baby Bunting Marketplace gives brands the ability to sell their products through Baby Bunting’s e-commerce platform, which reportedly draws 30 million online customers per year. The retailer also has 750,000 active loyalty customers – 10 per cent of whom account for up to half of its sales. For Baby Bunting, it’s a win-win. It can offer a far larger range without the need to actively stock any more products. In fact, the business has already listed over 5000 new products to its online offer, and plans to finish the calendar year with 20,000 new SKUs available. “In the context of raising a child, we are still only servicing a fraction of the needs for parents, and believe there is significant headroom to grow customer lifetime value and retention through range extension,” Hoekman said. “Marketplace presents the most capital-efficient natural response to the opportunity, via the seamless integration of third-party products and sellers into our existing online experience.”According to Hoekman, the marketplace won’t cannibalise Baby Bunting’s existing offering, and it will help the retailer to determine future in-store range expansions. Hoekman, like many others in the industry, also noted that customers’ average order value has fallen in the last few months as they trade down into less-expensive alternative products. A wider range could result in customers discovering more products that they’d like to purchase, but it could also end up diluting the business’ core offer. The long roadMal Chia, co-founder of e-commerce consultancy Ecom Nation, told Inside Retail that retailer-run marketplaces are becoming more common, and make sense for market leaders to operate. Bunnings is another retailer that has launched an online marketplace within its vertical. The challenge, however, is ensuring a steady stream of customers. “Most marketplaces just don’t generate enough traffic,” Chia said.“You need to have a lot of people browsing the site, hoping they’ll find something they like, which you can then monetise.”That could be difficult with relatively niche product lines such as baby goods. Should the business expand beyond its core offer, it could generate sales in new verticals. For example, Chia mentioned that one of Barbeques Galore’s highest-selling products online is a guitar, rather than anything cooking related. In terms of how successful retailer-led marketplaces will be long-term, however, Chia is sceptical. “You can’t build a moat around a marketplace,” Chia said. “In the short-term, you’ll be able to replace some revenue, but as a long-term strategy – unless you’re Amazon, where you own the whole value chain, and you can bring in your own private-label products – it’s going to be hard.“I do think that Baby Bunting had to [launch a marketplace]. There’s less consumer spending, and the behaviour around some of the bigger ticket items has changed – you don’t need a brand new car, and you don’t need a brand new pram.”Online has hit rock bottomAs far as Chia is concerned, online sales have likely bottomed out already, and with fewer interest rate hikes on the horizon, he is expecting things to begin normalising sometime next year.However, retailers shouldn’t expect online sales to reach the highs seen during the Covid-19 pandemic – and they should expect to have to fight harder for them.“Part of the challenge now is that there’s just so much competition out there,” Chia said. “That wasn’t there when you were in online retail in 2019, but now there’s three or four times the number of competitors. Brands had no choice but to accelerate their online offer, which means retailers really need to think about what’s going to make their offer unique.“Otherwise it’s just going to become a race to the bottom.”