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Consumers Are Flocking to Online Marketplaces, But That’s Not Bad for Retailers.

Ellen Harvey

Shoppers have fallen in love with online marketplaces like Amazon, eBay, and Wal-Mart. These marketplaces provide a level of convenience shoppers have come to expect, from a wide breadth of products to fast shipping times and incredibly low prices. In fact, according to Internet Retailer, nearly 50% of all online purchases were made on these platforms.

Sidecar spoke with Internet Retailer Research Director Fareeha Ali in a recent podcast to discuss its newly released Online Marketplaces Report which tracks the fastest growing marketplaces around the world and provides valuable strategies for retailers trying to navigate this space. While Fareeha admits the growth of marketplaces creates greater competition for online retailers, it also creates new opportunities.

Marketplace shoppers, she says, are typically new audiences that retailers can tap and nurture into more brand loyal customers. Selling a limited number of products on marketplaces, and saving more premium products, like new releases, for the retailer’s website, can strike a winning balance.

Listen to the full podcast below to learn how retailers can take advantage of the marketplace opportunity and prepare for the rapid growth in this space.

Top Sound Bites

(edited for brevity and clarity)

Ellen Harvey: 97% of U.S. consumers have shopped on an online marketplace, which is an astounding number. What makes these platforms so attractive to shoppers?

Fareeha Ali: The convenience is really the biggest factor here. The second thing is, because there are so many marketplace sellers on each of these platforms, the competition often drives down prices. So, with all these sellers competing for the same buyer on a given marketplace, sellers often are forced to drive down prices, which is a positive result for buyers. The large number of products, the wide range of products, the convenience, and lower prices make marketplaces really attractive for shoppers.

EH: What are the most popular online marketplaces in the U.S.?

FA: The top marketplaces that we hear often are Amazon, eBay, and Walmart. Those are the top three in the U.S. eBay and Amazon alone account for 49% of all U.S. online retail, which is really crazy to think about considering how many U.S. retailers there are out there.

And that’s why it’s important for retailers to at least consider marketplaces, especially Amazon, because that’s where the shoppers are and so much of online retail happens there.

But there are definitely other marketplaces that are growing and moving up in the ranks, especially in recent years. Those include Houzz, which is the marketplace for housewares and home furnishings. Wish is another. It sells apparel directly from Chinese manufacturers. They’ve grown quite a bit in the last couple of years since launching.

EH: Retailers are also launching their own marketplaces. Do you think this trend will continue?

AH: Yes, definitely. Because the model makes sense, especially for large retailers. The reason some of these retailers are launching their own marketplaces–which just means that they’re allowing other retailers to sell directly on their website and they’ll charge a commission fee–is because they can very quickly expand the number of products that are available on their site.

If you look at Walmart in 2016, the number of products that were available on walmart.com were about 8 million SKUs. And March of 2016 is when they really made their push for their marketplace, and then in the last two years, they’ve been very aggressive about it. Now they have more than 75 million SKUs available on their website. And they would not have been able to scale that much without the help of marketplace sellers.

That’s one of the biggest reasons why retailers do that. And the reason retailers want to do that is so they can compete with other marketplaces, and have everything a customer might be looking for. It’s really hard for a retailer to do that on their own without marketplace sellers.

EH: Are there other benefits for retailers launching their own marketplaces?

AH: Yes, another benefit is that retailers can test products. I you’re thinking about, “Well, I’m a toy retailer and a lot of my customer base are parents so maybe I should expand to the baby category.” But it’s really costly to even test that. What if you manufacture a bunch of baby products and then none of them sells?

If you’re operating a marketplace model, you can just recruit marketplace sellers that sell that particular category and then test it that way, and it really doesn’t cost you anything. And then if consumers are buying it, then you can make the investment to manufacture your own products in that category and then expand that way. There are definitely risks to launching a marketplace, but for some retailers, it’ll be really beneficial.

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