Third-Party Marketplaces: Massive Growth or Major Mayhem?

Third-Party Marketplaces: Massive Growth or Major Mayhem?

Insights

February 16, 2017

Amazon famously put third-party marketplaces on the map by offering a powerful platform for sellers who otherwise might never have had a digital presence. Amazon's marketplace still receives the lion's share of attention, but that is set to change as other retailers jump on the bandwagon. Since Amazon set the standard, hundreds of retailers across every tier of retail have opened their online platforms to third-party sellers, including Walmart, Staples, Macy's, and Crate & Barrel, among many others.

And it's easy to understand why. On the surface, retailers' expansion into the marketplace model seems like a boon to business with no downside, especially since, unlike Amazon, most traditional retailers simply feature third-party sellers on their eCommerce sites and take a cut of sales without carrying additional inventory (by contrast, only about 50 percent of Amazon's unit sales are currently driven by third-party merchants).

Through third-party sellers, retailers can essentially collect rent on their digital platforms while exponentially expanding their offerings, in many cases leaping into completely new categories overnight. These are powerful incentives, especially with increased consumer expectations for endless choice, and holding shoppers' online attention (and closing the sale while they're still on-site) can make all the difference in retailers' bottom lines.

Despite its many benefits, marketplace participation isn't without its perils, as retailers are starting to learn. Here are three reasons why third-party marketplaces might create mayhem as more retailers jump into the fray:

Added Complexity

It may be easier to introduce thousands of new SKUs in an online environment than to attempt to wedge them onto store shelves, but doing so adds complexity. For example, if products aren't searchable and if pertinent product information is missing, retailers risk losing an online sale. Enter the era of retailer-as-content-manager. Walmart has probably been the most aggressive and vocal when it comes to requesting online content from its suppliers and integrating it into the Walmart platform, and many more must follow suit if they want to make their marketplaces hum. Doing so involves offering millions of new online items, each surrounded by a unique multimedia content ecosystem, which can include descriptions, usage videos, customer reviews, and more. Retailers and suppliers will be required to build dedicated content management teams to manage the details and offer a competitive online shopping experience.

Lack of Control

Retailers yield a certain amount of control over their corporate brands when they expand their assortments through third-party sellers. Brands can easily be tarnished by poor execution, pricing games, and false claims from their third-party partners. Retailers have already begun to face backlash on social media from consumers who were incensed by inflated prices on hot holiday items, late shipments, quality problems, and other issues perpetrated by third-party sellers, all of which ultimately reflect poorly on retailers.

Lack of Integration

Clicks-to-bricks convenience is at the forefront of retailers' strategies. Most major retailers that operate eCommerce platforms and brick-and-mortar locations offer some version of a buy online, pickup in-store option. Only a handful are offering a full portfolio of convenience solutions such as click-and-collect, drive-through pickup, curbside pickup, home delivery, and same-day delivery. Not a single retailer operating a third-party marketplace features all items available online for in-store pickup, yet shoppers don't always find that out until they are well into the online checkout process. Retailers risk large-scale cart abandonment when shoppers' expectations are dashed at the last minute, and many customers just won't come back. As millions of new items are added to the online marketplace ecosystem, the third-party products with inflexible delivery possibilities will begin to "drown out" those provided by the retailers themselves, compromising retailers' hard-won convenience premise.

The growth in third-party marketplaces shows no sign of slowing down, and consumers will benefit from the resulting price and execution competition among retailers. However, retailers that consider third-party marketplaces to be sources of passive income may be in for a rude awakening. But those that view this growing area of eCommerce as an extension of their brands will dedicate resources and maintain vigilance, eventually earning a greater share of customer attention and sales.

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