If You’re A Retailer & Not Using An Online Marketplace, You’re Missing Out

Tuesday, July 31, 2018

  By Ian McCue, senior associate content manager at NetSuite

In short: 

  • Shoppers spent $1.5 trillion on online marketplaces last year. That’s half of all online sales.
  • While selling on marketplaces poses some minor hurdles, it’s an overall worthwhile way for retailers to rapidly expand their product catalogs and attract new customers.
  • In the not-so-distant future, niche marketplaces will pop up as existing ones grow at a healthy clip. Retailers big and small who don’t take advantage of them are missing out.

No matter how vast your online catalog, you can never offer all the products potential customers might be searching for. But what if there were a way to rapidly expand your product catalog without breaking the bank?

Enter marketplaces. They allow bigger retailers to offer far more products without the cost of purchasing or stocking them. For smaller companies, they’re a great opportunity to reach a new audience at a low cost. In most cases, sellers fulfill their own orders, then pay the marketplace a fee for bringing in the business.

Amazon is perhaps the most well-known online marketplace in North America. (credit: Amazon.com) 

Marketplaces are growing, FAST.

Chances are you’ve purchased something through a marketplace, whether it was Amazon, eBay or a smaller ecommerce site. They're one of the fastest-growing segments of online retail: In 2017, customers spent a whopping $1.5 trillion on the world’s top 75 online marketplaces. Those sites saw a 34 percent increase in gross sales last year, according to Fareeha Ali, director of research strategy at Internet Retailer.

“Fifty percent of online shopping is happening on these platforms, and if you’re not there, you’re missing out on a large base of consumers,” Ali said during a session at the Internet Retailer Conference & Exhibition last month.

The largest online marketplaces in the world, Taobao and TMall, are both in China and owned by retail giant Alibaba. The $768 billion spent on those two sites in 2017 is much more than the $470 billion generated by all U.S. marketplaces, per Ali.

This segment of commerce is just getting off the ground in the States, with immense potential.

The top American marketplaces are names you would expect: Amazon ($320 billion), eBay ($88 billion) and Walmart ($30 billion). 

Social media networks are trying to capitalize on this gold mine of potential, as well. Facebook opened a marketplace a couple of years ago. More recently, Instagram rolled out “shoppable” posts that link to ecommerce sites, creating a type of marketplace all its own.

Instagram's shoppable posts allow users to purchase products in the app. (credit: Instagram/shopbop)

Meanwhile, Walmart’s marketplace revenue jumped almost 50 percent in 2017 and has more than twice as many SKUs today compared to a year ago. Big-name brands like Nike, Gap and Best Buy recently started selling on Amazon, a sign they see promise in this channel.

The homepage for Walmart Marketplace encourages third-party retailers to sell via the big-name brand. (credit: Marketplace.walmart.com)

Amazon and eBay will remain the leaders in this space for the foreseeable future, and more big brands will join the party. Ali predicts an increasing number of large retailers will also launch their own marketplaces. Grocer Albertsons will soon launch Albertson Companies Marketplace, allowing third-party vendors to sell direct-to-consumers. Sellers will fulfill and ship the order, paying Albertson’s a commission for each sale. Other retailers like Crate & Barrel, Overstock and Hollar quickly built thriving marketplaces over the last several years.

It’s likely that existing niche marketplaces like Reverb (music records), Newegg (computers and electronics) and Houzz (home furnishings and renovation) will continue to grow. These smaller sites offer sellers an advantage: On them, products stand out because there is not an overwhelming list of items.

Established retailers: Consider launching your own marketplace.

Retailers who have the capacity to start their own marketplace can increase revenue in short order, among many benefits.

“When you quickly increase the number of products you offer, you can reach more customers, you can get more customer data, your site could be better represented in search,” Ali said.

“Then, taking it a step further, because you’re learning what your customers want, you can slim down the products you offer and increase profitability. Maybe you have a seller that offers the product you have been selling, but they’re doing it better [and] at a lower price. In that case, I don’t have to sell that product anymore, and I can take that cost off of me and only sell the ones that are the most profitable.”

Growing retailers: Consider selling on an existing marketplace.

Most small retailers lack the resources to start their own marketplace, but both major marketplaces and industry-specific ones are smart places to build a new revenue stream and expand brand awareness. 

It’s a low-risk opportunity because the startup costs are minimal. Applying for a seller account requires submitting some basic information online. On top of commission for each sale, some marketplaces also charge monthly fees. (For example, Amazon “Professional” is $39.99 per month, and Newegg is either free or $29.95 per month for a “Professional” account.)

Newegg is an online marketplace for computers and electronics. Its seller sign-up page breaks down the seller application process. (credit: Newegg.com)

After signing up, you'll need to decide whether it’s more cost-effective for the marketplace owner to fulfill and ship orders on your behalf, or for you to do it yourself. You'll also need to figure out which products to sell. It’s smart to start with your bestsellers, then test other items and measure their performance.

It may also be worth buying ads to promote your new marketplace listings. Businesses must pay attention to the competition, and not just in terms of price. Optimizing your product page with the right content -- including product information, images, customer reviews and more -- will help it rank higher in product searches, increasing the chance that undecided shoppers will buy. Temporary promotions like “Lightning Deals” on Amazon can also help you hit the ground running.

“It has to be a part of your strategy.”

The bottom line: Retailers of all shapes and sizes should find a way to take advantage of marketplaces. There’s something in it for everyone.

“Marketplaces are such a big part of ecommerce now that the conversations you should be having are not, ‘What is a marketplace?’ or, ‘Should we or should we not use this channel?,’” Ali said. “It has to be a part of your strategy one way or another, because our data shows that’s where consumers are.”

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