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Roundtable

Roundtable: The Marketplace Explosion

Seems like these days, everyone is starting a marketplace. Does a brand choose to play or not? Rob and Peter discuss the onslaught of marketplaces and the need to prepare for an ever-increasing array of places to show and sell direct. 

Sign up for our D2C Strategy Playbook Series here: https://www.salsify.com/content/webinar-group-m 

 

TRANSCRIPT

Peter:

Peter Crosby, coming to you from the digital shelf institute's cape cod office, and Rob is in the Berkshires. Hey, Rob.

 

Rob:

Hello there.

 

Peter:

So Rob, as you know, we're doing a whole series of webinars, discussions on DTC strategies at the DSI. Annie will actually link in the show notes to the next great installment coming up on the 25th. But I think in that spirit of DTC focus, uh, let's talk about marketplaces.

 

Rob:

All right.

 

Peter:

It seems to me like these days you get a marketplace, and you get a marketplace. It seems like everybody as a freaking marketplace, like target Kroger, Walmart, let alone the Amazon's eBay's Alibaba's what is this? How do brands respond to this explosion? Should they, how do they, how do they think about it?

Rob:

Yeah. So let's, let's go back to the beginning and think about what exactly a marketplace is. Let's define it for folks and then talk about why all of a sudden there's all this attention on it. Um, when, when typically we use the word marketplace, we mean specifically a third party seller set listing and selling items on your website. And the third party seller is responsible primarily for the packing and the shipping direct to consumer and the retailer doesn't have any particular need to ever have the physical item in their possession. So the first large eCommerce company to do this was eBay, where obviously everything that happens on eBay is consumer to consumer. It's a peer to peer selling marketplace. And Amazon started allowing 3P listings at the same level of search results as their 1P less listings in, you know, the mid two thousands of 2004, 2005, something like that. This was highly controversial within Amazon. You know, Jeff Bezos was wanting to do it, not everyone was excited about it. There were a lot of discussions and ultimately you fast forward, 15 years, 3P's sales on Amazon account for about 60% of the total items sold on amazon.com. And just over 50% of the GMV of items sold on amazon.com and that's relatively stable. Um, every quarter, some quarters, the three P GMB is a little under 50%. Some, some quarters it's a little over 50%, but in general, like it's about, about half of what Amazon sells, right?

 

Peter:

Amazon takes a cut of every one of those transactions, right? So that's the margin.

 

Rob:

Exactly. Right. So the 3P's sales for him is done our suite in a few different ways first because they're not actually paying to carry the item. You haven't purchased the item. There's, there's no inventory capital in play here. It's just pure margin, right? Um, so they get that, that fee for every single transaction. Uh, then a lot of the three-peat sellers use fulfilled by Amazon FBA as their logistics system so that they can get the prime badge. And, and so Amazon will then take care of picking and packing and shipping the item to consumers. Amazon takes a cut of the logistics and FDA. So they're making money that way. And the 3P's sellers pay for Amazon advertising. So they're making money that way. So they're making margin on a three-piece sale, every single way they can. Uh, it's a really, really profitable business for them. But originally the profits were not just like most of the things that Amazon does. The profits were not the original driver. The original driver was to round out the assortment. Amazon can only buy and sell themselves so many items. There's only so much warehouse space. Uh, their buyers can only really look at so many items and so on and so forth. So there's a limit to what Amazon, as a first-party reseller to consumers can do. Uh, so the third party sellers add tremendous numbers of skews to the assortment. And the idea there with the assortment is that if a consumer goes to amazon.com, they're going to find what they're looking for and they don't have to check somewhere else. And the more times they go to amazon.com and they find what they're looking for, the more that becomes a habit and the more they just don't even, they don't even go to other sites. It was about habit, more than anything else, but it's a nice profit margin too

 

Peter:

Well with this explosion of marketplaces is happening. You know, Amazon's desire to be the everything store, right? So many marketplaces spinning up. Can that many retailers be everything?

Rob:

I mean, I think the short answer is no, I like a lot of things that happen at retail right now. It's one of the, one of the really easy criticisms you can make of some of these initiatives is that they're me too, initiatives. Um, you know, retailers that aren't necessarily innovating in their own way in their own sphere are simply copying what Amazon is doing. So Amazon does cashier list checkout. Then all of a sudden everyone's investing in the cashier. Let's check out Amazon's marketplace. Sales are growing and, you know, they're getting regulatory scrutiny because they're making so much money off of it. So therefore everyone's copying Amazon advertising is now the third-largest advertising digital advertising company in America. So now everyone's investing in PR digital performance, paper, click advertising. And so, so like that's an easy criticism you can make. Um, but it doesn't in this case. I don't think that following the market place, footsteps are necessarily wrong. You know, if, if you are hypermarkets like a target or a Walmart, then it makes sense to bolster your assortment with third parties. You, you also are looking for people to buy as a habit from you first, before they go somewhere else. And having more of the assortment will allow you to defend that habit more effectively than if you don't have that assortment. So strategically for some of these folks that make sense. Um, for others, I have a much harder time understanding how it plays into grocery, you know, Kroger, and Albertson's both, uh, purchased miracle, this, uh, software that enables a retailer to spin up a marketplace capability on our website relatively quickly. I honestly have a harder time understanding that strategy grocery is just different, right then the rest of retail,

 

Peter:

But do you feel like technologies like a miracle, and maybe you want to describe a bit of what they're doing? Do you feel like that's going to innate people a whole ton of other retailers to spin up marketplaces in a, in an, in an easier way?

 

Rob:

Yeah. I mean, Miracle has been growing really well because a whole ton of retailers has been spending big marketplaces using their software. So, so, yeah, and I think the challenge here is like, you know, Walmart did, did their own marketplace technology stack, and they've been at this for years and years now in America. Um, I think AF they're number three, it's Walmart, eBay, uh, or sorry, Amazon eBay, Walmart in that order, uh, in terms of marketplaces, but there is a really steep decline in third party sales for each one of those steps. It's not like number one is 20% larger than number two. It's number one is, you know, orders of magnitude larger number two, which is orders of magnitude larger than number three. So, uh, the folks that we know that are selling the third party, I mean, 80, 90% of their revenues from Amazon sales, and typically you'll see 10% or less of total third party seller revenue, um, for any given third party seller coming from Walmart. And Walmart is the second biggest eCommerce site in the U.S so it's, um, you know, Walmart's been at this for a long time. They've got, I believe over a hundred million, third party listings, and they're not making, you know, relative to Amazon third party. They're not making that much money on that strategy. So, uh, it, there's a couple of things that are, that is interesting about that. First is a lot of people just simply aren't listing on Walmart. You know, Amazon has 600, 700 million products on amazon.com. Walmart has a fraction of that. Um, if it were, if you were simply a third party seller, in theory, you'd want to just list everywhere. And the evidence is that people just aren't even bothering, right. So, so, you know, just throwing up a marketplace, doesn't guarantee that you're going to get the assortment that you want. And, and second, um, there's just a real difference between walmart.com, third party sales, and amazon.com first-party sales. Uh, and just in terms of total volume, some of that might be because Amazon has FBA, Walmart has launched an FBA competitor that's relatively new and, you know, maybe, maybe that'll allow them to catch up in some ways, but it's, it's, I think it's a lot more difficult than simply throwing on a marketplace and Calling it a day.

 

Peter:

Yeah. I mean, they've added Walmart plus and, you know, sort of the Walmart prime and, and also, you know, in terms of, you know, this won't solve the gap between, um, listings between Walmart and Amazon, but the partnership was shop Shopify that was announced on June 15th has already brought 5,000 new sellers during the first six weeks. So that, that feed of sort of niche-targeted D to C brands bringing their wares to Walmart is that's another quick way to get sellers onto your plate.

 

Rob:

Yeah. That's, I mean, Shopify had the Facebook announcement, the Walmart announcement Shopify is in a lot of ways, the anti, Amazon, um, Ben Thompson writes about them in terms of their strategy in that way. I think it's, I think it's really, really interesting. I understand a little bit less how the Walmart Shopify partnership is beneficial than the Shopify Facebook partnership, but yeah, in short, that will allow more skews to show up on walmart.com, but it's not like brands that have their own direct to a consumer commerce site. Haven't had that capability for years, you know, there's, there's plugins to Magento and Shopify and big commerce and Salesforce, commerce cloud, and whatever, you know, woo, commerce, whatever you're using, if your desire is to cross-post your listing to walmart.com, you weren't prevented from doing it before this announcement on the Walmart Shopify partnership. So it's not like all of a sudden, Oh man, you were saying you were using Shopify before and you couldn't list on Walmart. Now you can, it's like, no, you can do that before, too. So yeah.

 

Peter:

It's how easy do you make it? Right?

 

Rob:

I don't, I think it was pretty easy before. I mean, you know, you can, you can focus on adoption and maybe the focus on adoption and the press and making, making the integration a little easier to use, get 5,000 people on it. But it's really hard to see making a huge dent. I mean, one of the stories here is, you know, the vast majority of sellers that third party sellers, not maybe at the vast majority, but, um, a lot, a lot of them are foreign. And, you know, these are not, these are not brands that have Shopify sites or selling direct to consumers. These are, you know, Chinese third-party sellers selling out of the manufacturer direct to the,

 

Peter:

Yeah, there was a recent article by Juozas Kaziukėnas, at marketplace pulse. He noted that it's been a decade since chant Chinese manufacturers were able to sell direct to consumer. So this, this decade, you know, uh, 2010 to 2020 has brought tens of billions dollars worth of goods from China to consumers across, uh, a ton of these marketplaces. And it's this, you know, this quiet industry sort of capturing profit, but it brings it some risk, right?

 

Rob:

Yeah. I mean, this is the other issue with marketplaces. Um, Amazon gets dinged a lot for fraudulent products, misleading products, stuff like that, that gets sold on amazon.com. You know, we talked in a previous podcast episode about the California appeals court ruling against Amazon, um, for selling a product from a, uh, third party seller from China where the product, you know, really hurt somebody. And, and, uh, there was a lawsuit, right? So, um, I there's, there's a, there's a big risk here, which is that if you open up the doors to third party actors of all sorts, and, um, you're gonna, you're gonna see any, all the types of misbehavior on marketplaces that we see everywhere else, every everywhere, where there's an open forum, where human beings can just list stuff and do stuff without a lot of oversight. There's bad actors. There's bad actors on Facebook. There's bad actors on Twitter. There's bad actors on Amazon marketplace. There's bad actors, literally anywhere that you've got an open forum,

 

Peter:

There's a human being.

 

Rob:

That's just humanity. You know, there's nothing you can do about that. And Amazon at their scale, it's not like they're not trying to stop this stuff. They have literally thousands of people employed at Amazon who worry about counterfeit and worry about fraud and worry about trademark violations and worry about all that stuff they have. It's they, they're trying really hard. They're investing a ton on this. So if you just throw open a marketplace and allow, for example, foreign actors in particular to-do listings, you know, you're going to have the same problems and you're going to be responding to them with much less resources available to you. And that's difficult. Now you might be able to get away with it for a while because, you know, look at like an Albertson's, right? It's not like Albertson's is banking a hundred billion dollars of third party sales on albertsons.com with their miracle investment. So it's possible that you know, the volumes are so low that if there's a little fraud here and there who cares, or it's also possible that the fraudsters just don't see enough money on a site like albertsons.com. So they don't even bother. So most of the actors are good actors. Anyway, there are all kinds of possibilities, but there is that risk. And, uh, and, and, you know, let's, let's be honest. The people that are gaming the system, the reason that Amazon has a hard time stamping it down is because every single move that Amazon makes the counterfeiters and the fraudsters and the bad actors, they make it countermove, it's the chicken, you know, it's not like this is a problem that you solve once. And for all, this is a problem that you just continually have to invest in because it's a cat and mouse.

 

Peter:

So for all of our listeners who are great human beings, and aren't gaming the system, um, these brand manufacturer leaders who see this onslaught of marketplaces, uh, and, and are trying to figure out where do I place my bets? Where do I take my products? What's worth the investment? What, what's the, what's the response?

 

Rob:

There's a couple of things here like mine. My personal belief is as a brand, you've got to be everywhere. You know, especially what we just talked about. Fraud. If you are not controlling your brand on these marketplaces, somebody else is going to, and that's a problem for you. So just like we've seen on Amazon, if you're not a brand that's monitoring the third party activity on Amazon and ensuring that your brand, uh, content and message are taking precedence over the crap that a third party puts up, then you know, that that's a that's a problem for you. And so my view, generally speaking, is anywhere consumers might find your product. You know, you've got to make sure that your branding there is, is top-notch and high quality, and is, is policed. Um, that said one of the major challenges here is that kirby.com target.com, walmart.com, ebay.com, amazon.com, and so on and so forth, you know, let alone Facebook marketplace, which is totally different.

 

Rob:

They all have different content structures and site attribution structures and search structures and all this type of stuff. So it's not as simple as simply taking your Shopify listing and just slapping it all over the internet. Uh, there's, there's actually some transformation of the data that you gotta do in order for the data to be accepted by these marketplaces. Um, and like that's work, right? So like there, there's kind of a, uh, uh, resources, constraint problem here whereas a brand manufacturer, most large brands, in particular, just really getting started on direct to consumer is a strategy they're investing in the shipping and logistics capabilities to be able to, you know, pack and ship and each to a consumer in a way that, you know, is at least break even. And, um, once they have that in place, you know, they've got their own.com where they've got to sell directly to consumer. They've got Amazon to worry about at some, somewhere down the line. You gotta, you gotta, you gotta list on Albertsons too. Uh, but so it, I think it belongs in the priority stack, but it's, it's, uh, you know, it might be down the priority stack for a time.

 

Peter:

Are these brands because to your point in kind of the point of our DTCs strategy, playbook series, it's, uh, it's, you have to build this capability to ship each. If you're going to, to grow your business in the next two, five, 10 years like that, that has to be part of your,

 

Rob:

Yeah, this is a requirement. They, the capabilities to sell on a marketplace are things that are, I think, inarguable about a brand. You know what I mean? There's some, there's some categories, you know, like alcohol, where there's legal prohibitions about how you can ship direct to consumer and in what context and all this sort of stuff, but like those aside, everyone else should have that capability. And once you have that capability, there's no reason not to list on the marketplaces. And in fact, there's a lot of reasons to list on the marketplaces, including protecting your brand and, you know, betting on the future. Like, I mean, talk, we saw target pop 273% target.com and nobody saw that coming. I mean, that's

 

Rob:

Explosive. And the people that are really taking targets seriously are benefiting tremendously. And the people that work taking target.com that seriously, you know, they didn't get that benefit. Right? And so, you know, there at some point, this is just inevitable that brands are going to have to figure out a way to be everywhere and play on these marketplaces. And, you know, most of them are gonna work out, but the ones that do are gonna are going to be worth being on early,

 

Peter:

I think that's as good a place as any, to, to close out that sort of Clarion call to action. And as I mentioned at the top of the show, uh, we do have our DTC strategy playbook series running on August 25th at 1:00 PM Eastern, we're going to have Ricky Busby. Who's the director of econ and website content strategy at Georgia Pacific. He'll be talking about how he's building brand awareness and driving customer acquisition. Cause for a lot of these brands, doing the performance marketing funnel stuff is a new skill. And, and hearing it from Ricky's mouth, sort of how, Georgia Pacific sort of is testing and learning their way into this is going to be a really great conversation. And like I said, at the top, Annie will put the registration link in the show notes. So, thanks, Rob. Thanks for joining us, everyone. And thanks as always for being part of our community.