Retail’s Marketplace Boom Comes With a Hidden Risk

Online marketplaces are becoming a sleeping giant in the retail industry, particularly as more traditional omnichannel retailers develop their own third-party-powered marketplace engines.

Of course, the likes of Amazon, Alibaba and Ebay have been home to third-party producers of unique products or small, niche items for several years, but very recently, traditional retailers have been creating outlets.

Companies like Best Buy, Ulta Beauty, Lowe’s, Michaels and Nordstrom have launched their own digital marketplace offshoots, and these channel-specific marketplace sites join the ranks of major players like Walmart+ and Target Plus.

With all that activity, it’s no surprise that BCG data shows roughly two-thirds of global ecommerce sales now flow through marketplace models. The trend of specialty marketplace sites run by traditional retailers is shifting how retailers view assortments, capital investment and the customer experience.

However, marketplaces come with operational challenges, especially around incentives and promotions, so retailers must find ways to integrate that business as opposed to running it in isolation. Reaping the Marketplace Benefits At face value, the appeal of a marketplace for a healthy omnichannel retailer is obvious.

Marketplaces allow retailers to dramatically expand assortments, creating a truly endless aisle experience without taking on inventory risk. Third-party sellers join the marketplace, handle storage, fulfillment and logistics, while the retailer earns the revenue associated with commissions, advertising and ancillary services.

The model brings a bit of flexibility to a retailer’s overall operation and strategy, too. The retailer can partner with suppliers that broaden their overall assortment into more niche categories without making a long-term inventory commitment or crowding planograms.

Also, retailers can test trending products and specialized vendors on a marketplace before scaling them into the larger overall operation. This is the same for third-party sellers, too.

A niche supplier can partner with a traditional retailer and identify how that company’s legacy and history give them equity, trust and promotional credibility, which independent sellers might lack. Shoppers are more willing to try an unfamiliar brand when it appears within the world of a retailer they trust.

That credibility, paired with established loyalty programs and promotional muscle, can significantly accelerate conversion and engagement. In theory, it’s a win-win agreement, but how retailers manage and execute can be the difference between achievement and headache.

Bringing a Marketplace into the Retail Core One tricky aspect of a traditional omnichannel retailer operating a branded marketplace site is that the third-party seller reflects on the company’s legacy.

How the third-party product performs, how the company delivers the product and how any incentive or promotion is executed will all come back to the host retailer. Retailers should consider how a third-party seller fits the company’s brand and history and invest in properly onboarding the company.

However, retailers often overlook dynamics such as pricing and promotions and how that can impact a customer experience and brand equity. Promotions have always been a core retail competency. Discounts, bundles, loyalty offers and personalized incentives are powerful drivers of demand.

However, when marketplaces are layered on top of existing ecommerce and store operations, those same tools can create unintended consequences if they’re not centrally managed.

Viewing Unified Incentives in Action Retailers that scale marketplaces and leverage them to engage their loyal customers through offers can avoid issues like double-stacking promotions on products or launching inaccurate deals if incentives across channels are unified.

Having a framework in which both ecommerce and in-store teams can view offers in one place, as well as those working on marketplace sites and the third-party vendors themselves, help companies define clear rules about which products and vendors should participate in which promotions, at which times, and under what conditions.

Consider a drugstore that launches a discount on all cosmetics across its mobile app and home ecommerce site. Without fine-grained controls, that discount may automatically extend to marketplace products, where the retailer has relationships with niche producers of cosmetics that meet specific skin conditions or consumer needs.

For a hypothetical third-party seller, say Rosie’s, that discount may not be sustainable. For example, if Rosie’s has tight margins or strict pricing strategies, it may not want its products to be opted into a full-on digital promotion.

Flip the scenario, and without a unified framework in place, Rosie’s might want to run a compelling bundled offer with free shipping on its own Shopify site, but the drugstore doesn’t want that offer to bleed into its operations. If a retailer doesn