Marketplaces and The New Sell Side of Retail
Not every retailer is enjoying high levels of success with online sales. In fact, many are abandoning their storefronts altogether – particularly small and midsize retailers. Instead these companies are choosing to sell through third party marketplaces. In the US, mega-retailers such as Walmart, Sears, Best Buy, Amazon.com and Barnes & Noble each allow other retailers to list their merchandise on their sites.
Why would a retailer use another retailer’s website rather than their own? Suppose you are a small shop with a unique variety of merchandise. To draw new customers to your website you will have to invest in online advertising or hope to be found on Google searches. Both of these are challenging propositions for small and midsized retailers. However, by listing on a large retailer’s marketplace your products are now exposed to a much larger base of customers who regularly visit the site. And you will appear in relevant search results on these high-traffic sites.
While there is an obvious benefit to the marketplace model, it does come with several implications for retailers that choose to sell through these sites. These retailers effectively become suppliers. I will refer to them here as marketplace suppliers. As a result, they must comply with all the business processes and technology requirements of large chains such as Walmart, Sears and Amazon. In other words, marketplace suppliers now have a “sell-side” to their business in addition to the traditional “buy-side” they manage to acquire merchandise from their vendors.
Consider the sell-side B2B e-commerce requirements for marketplace suppliers. Marketplace suppliers must be able to upload their product catalogs electronically to the retailer. They must be able to update pricing information electronically as frequently as it changes. They must be able to provide up-to-date information on inventory availability and order lead times to the retailer. They must be able to receive purchase orders electronically from each sale that occurs on a marketplace. And they must be able to provide shipment status updates back to the retailer throughout the lifecycle of an order.
Marketplace sales are just one of several examples of this new sell-side of retail. To increase distribution certain retailers have now started to market their private label brands through other retailers. For example, Sears Holdings now sells its popular Craftsman, Diehard and Kenmore brands through other retail chains such as Orchard Supply Hardware, Ace Hardware, Summit Racing Equipment and AAFES. (Of course, Sears subcontracts some of the manufacturing of these products to companies such as Johnson Controls, Whirlpool and GE).
International expansion is also driving a sell-side for retailers. More and more chains are licensing their brand names to foreign operators in emerging markets such as the Middle East and Northern Africa. In each of these scenarios, these retailers now must effectively act like suppliers and operate a sell-side to their business.