Traditional Retailers Launch Online Marketplaces

Retailers Seek to Diversify Through Marketplaces

Third-party marketplaces, long a staple of Amazon (AMZN) and eBay (EBAY), are gaining in popularity among traditional retailers. Urban Outfitters (URBN), Macy’s (M), and Kroger (KR) are just some of the companies enabling third parties to sell goods through their websites.

Third-party marketplaces are a relatively low-cost way for retailers to boost revenue. Sellers list their inventory on the website and retailers get a cut of the sale—typically 15%, but the split can go as high as 40% in some cases. Retailers don’t hold inventory or cover shipping costs, making it a high-margin diversification channel.

Customers Get More Choice

By launching third-party marketplaces, retailers are hoping to give customers more choices. They are handpicking the sellers that can list products on their platforms. For example, grocery store operator Kroger is selling Bed Bath & Beyond (BBBY) products on its marketplace. Meanwhile Hudson’s Bay is using its marketplace to sell Louis Vuitton bags. Urban Outfitters’ marketplace is focused on second-hand clothes.

Macy’s is gearing up to launch its third-party marketplace in the second half of next year, offering customers access to a curated selection of third-party sellers. Macy’s said the marketplace will expand its existing categories and enable the department store operator to enter new ones.

Risks Loom

There are risks associated with marketplaces. If the sellers on the platform provide shoddy service or low-quality products, it may hurt retailers’ reputations. It could also dilute sales of their own goods if the third-party brands prove more popular. If retailers fail to properly integrate the marketplace with in-store pickup and returns, it may frustrate shoppers.

Retailers are hoping to avoid those problems by carefully choosing the brands that can sell on their platforms. They also think being able to quickly respond to trends will give them a competitive edge. The moves come at a time when ecommerce is booming and more people are opting to shop online.

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