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PhoenixMart’s Contrarian Commerce Play

When a consumer wants to buy a good (unless it is something extremely specialized), options abound. Furniture, electronics, softwares, hardware, clothing, food, accessories — it almost doesn’t matter. Between the millions of physical retail locations for shopping and the borderless, always open digital marketplaces of the world, a customer can get whatever they want, whenever they want — if they can pay the right price for it.  

But a business that wants to go on a shopping spree faces a much more limited marketplace of goods to choose from. A consumer looking to buy one chair has lots of options, but a small or medium-sized business on a realistic budget that needs 500 chairs, or even 50,000 is really picking from a handful of choices.

“What we’re left with instead is what the big players have decided to source and place in their stores. If I am a small or midsized company and I want office furniture, I basically have six choices,” PhoenixMart CEO Steve Gardner told MPD CEO Karen Webster in a recent interview. “Everything is going to look exactly the same and I am going to have very limited options.”

When a customer is shopping local for big B2B retail orders, their options are limited to handful of big-box stores and what they stock, he explained. And while the Web has opened some of the same global doors for business buyers as it has for everyday consumers, the reality is that the stakes on corporate purchases are much higher.

“The problem is the Internet lets me see it, but not touch it, feel it and most importantly it doesn’t provide me with a real person to complain to if it is not what I thought it would be,” Gardner told Webster.  

The goods may be bland or not exactly what a SMB is looking for, but for a firm with limited amounts of money to experiment with its retail purchases, a known and dull commodity is often better than an exciting unknown.

“For a small or even medium-sized firm, if we don’t have the budget or the know-how to get outside the big-box stores or get outside what is offered in the big-box stores, I am going to go with the bland [model] at Costco if I can touch it and I’m spending 10K or 15K on it and my business needs it.  I’m not going to risk it on shipping it from Mexico or from wherever.”

But while SMBs just sort of accept this kind of forced conformity when they are shopping, as it turns out, this is not exactly the way things work everywhere in the world, according to Gardner.

“If I am in China, I can have hundreds of options in a location that is easy to find and easy to access,” he explained.

One such specialty location — the biggest in China — is Yiwu, a 40-million-square-foot real world mega-marketplace for B2B buyers.

“Yiwu is just the biggest of these; there are many smaller scale versions of this. I can get furniture that is unique, I can get furniture that suits the style of my business,” Gardner noted.    

Millions of visitors track through Yiwu each day — and as the idea caught on in Asia, it almost immediately began an international expansion, notably to the Middle East in Dubai.

“People who used to go to China from the Middle East and Africa now have a choice. They can go to China and deal with all the language issues, the cultural barriers, the customs issues and counterfeiting issues. Or they can go to Dubai and deal with more English proficiency, and where the rule of law is slightly more transparent. What [Dubai’s] DragonMart proved is that these kinds of marketplaces don’t just draw from an area, but literally the whole world.”

And now the whole world is coming to the U.S., in the form of PhoenixMart, a 1.5-million-square-foot physical B2B marketplace located strategically between Phoenix, Arizona, and Tuscon — a metro area with 6 million people of its own, as well as a major airline and rail of its own.  

“We’re just in a location that allows people or encourages people to come from far and wide, and we do anticipate that happening,” Gardner noted.

The marketplace does what Gardner notes its digital counterparts do: namely bring buyers and sellers together, but in the case of PhoenixMart and its similarly concepted counterparts, it also allows for the physical interactions most corporate buyers need.  

“It is broken into 2K suites, about 500+ square feet each. Some are bigger, some are smaller. And those almost 2K suites will be filled with well over 2K companies since some firms share suites,” Gardner told Webster. Gardner also noted that he believes that the concept will adapt to the U.S. because it solves needs on both sides of the transaction: the buyers need to get what they actually want, and the seller’s desire is to thicken up their profit margin some.

“Manufacturers are used to margins that are razor-thin and in walks someone who couldn’t find them through other channels. The buyer gets an incredible deal and the manufacturer only has to send the same thing to a person minus a middle man — and the difference on the profit margin is just tremendous.”

Currently, the space will offer those suites across 12 industries paired strategically with each other: Food and Beverage; Fashion (textiles) and Variety; Electronics and Accessories; Office and Recreation; Automotive and Industrial; and Home and Hotel (Hospitality).

“None of these are high liability,” Gardner noted. “We’re staying away from medicine/arms aviation because those are all highly regulated and they don’t work in this business model.”

As for the model itself, as of right now, PhoenixMart does not charge the retail partners for anything but their rent in the space — which by itself is enough to make the firm profitable.

“However, we will be adding some other revenue streams with the VIP clubs and association relationships,” Gardner noted, also explaining to Webster that the firm is also still in the early phases of investigating how to tie payments into their physical marketplace and offer consumers a recommended payment platform. That, Gardner noted, would offer the firm two benefits: access to a new potential revenue stream and access to better data.

“That data, who is buying what from which country — that data is so valuable [and it] is not being accumulated in the U.S. the way it can be in China,” he noted.

Doing something new is different, and building a million-plus square foot physical retail space in a country that has never seen its like before is certainly a bold move.  

But, retail everywhere is shifting, and those who are going to make it are probably going to have to be bold. And, Gardner says, the reality is that no matter who the shopper is, the goal remains the same.

“Customers want to be able to choose from a variety of products and have choices about how much they pay, how they pay, how much they negotiate. That is happening right now in China. It is ridiculous it isn’t happening here, but soon it will be.”

And such a shift would make physical commerce the go-to platform for buyers whose only other option was the Web.

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