Why Hearst is building a commerce marketplace

But given commerce revenue is down this year for some media companies and the economic slowdown has put restraints on shoppers’ wallets, publishers may need to rethink their commerce strategies.

Take Hearst which is in the process of launching a new marketplace in the fourth quarter. The marketplace is meant to be the new hub for the company’s DTC products and licensed products, but it will also be a new sales channel for the brands and products that readers of Hearst’s media brands regularly shop for as well, according to Sheel Shah, Hearst’s svp of consumer products and partnerships on the latest episode of the Digiday Podcast, which was recorded in front of a live audience at the Digiday Publishing Summit on Sept. 20.

This is an expansion of the media company’s current commerce shop strategy, which consists of 20 individual online branded shops for nearly all media brands in the Hearst portfolio, including the Oprah Daily Shop and Good Housekeeping Shop. The shops currently sell branded merchandise and licensed goods and are collectively on track to make 500,000 transactions this year, a 15% increase over the previous year’s transactions, according to the company, which declined to share hard revenue figures.

Ultimately, Shah hopes that the marketplace can tie together the company’s commerce business — from DTC and licensed products to affiliate links to direct brand deals — and ultimately drive digital subscriptions to the brands in Hearst’s portfolio.

Below are highlights from the conversation with Shah, which have been lightly edited and condensed for clarity. 

The state of the e-commerce spectrum  

Affiliate commerce [has] definitely evolved since the days of drop[ping] links into content. Publishers can do that and you’ll see a pretty quick return on that investment, but I think more mature publishing companies have taken it much further through strategic relationships with brands and thinking about how to create this type of content that will not only serve a reader but also drive revenue for the business.

And as that business has grown, there’s been more and more thought into where you go from affiliate — which is definitely the unlimited product catalog and a smaller percentage of each of those sales that you do help facilitate — to the direct-to-consumer e-commerce business that many media companies have tried and failed [or] succeeded.

[Direct-to-consumer] is definitely a higher margin — 100% of the revenue comes in the doors of the media company — however, of course, your product catalog is much smaller. You’re not going to be able to list and sell everything that there is online, direct-to-consumer. Finding a way to balance in between there is the big whitespace that publishers, and even other companies, have really tried to navigate. 

Enter: The marketplace model

We are looking to expand those direct-to-consumer e-commerce shops into a marketplace. So starting in the holidays, brands that we write about and that our editors love will be able to be considered to join our marketplace, and we’ll be able to sell their products in addition to our own in our branded shops. 

I have no interest in taking on more inventory of products, especially as the vision for the marketplace is to have dozens, if not hundreds, of brands [selling] on the marketplace. There’s no way that I’m going to be able to scale it with taking on inventory for each of these brands.

But I know many of those conversations happen where initially a brand is going to say, “Well, Target took on this many and Walmart took on this many, how many are you taking on?” I don’t want to take your inventory, but [then brands want to] guarantee some amount of sales. We’re not doing that either. 

I’d much rather get as many SKUs into the product catalog as possible, figure out which ones are resonating with our audience, and then go back to those brands and start figuring out how we build a strategic business together. If you create a marketplace where the barrier to entry is quite low, then I don’t think brands are going to ask that much of you. 

Our job is to make sure the product gets to the right user. And if it does, what do those conversion rates look like? And if those conversion rates are high, I want to have follow-up conversations with those brands.

The convergence of memberships and commerce

There’s a lot of opportunity where you can kind of see both of those businesses, [e-commerce and memberships] helping to lift each other. We’re looking to modernize and add more consumer value to our subscription business. We’ve been live for [about] three-and-a-half years with some of our [membership] programs, and we have above 85% renewal rates on most of [them].

Next is, “OK great, you serve a magazine to them on a monthly or quarterly basis, you have access to our digital websites. What more can our brands do for these users?” And I think that’s where the shop can come in.

Right now, our members have an exclusive discount to the [brand] shop. If you’re a Men’s Health member, you get 20% off at the Men’s Health shop. That’s nice — you can pick from like 30 to 40 products and get an exclusive discount from them. But what happens when that shop has hundreds of products from all of the brands that you love? That marketplace evolution can now expand our membership benefits. But at the same time, you’re having a bunch of different folks coming through your shop funnel, who are now like, “[If] I can get 20% off if I become a member, let me learn more about Men’s Health membership.”

You have high intent users coming in directly to your shops to purchase because it’s a credible place to buy and you have the product that they want. You also have readers coming in through our digital websites and they learn about memberships. And I think you can use both of those funnels to help build a larger direct-to-consumer e-commerce business, whether they are individual transactions on our shops or recurring subscriptions on our memberships.