Marketplaces and small brands may have a bright future in the retail industry in 2021 and beyond.
It has become a cliche to say the pandemic has “changed everything” or “accelerated” the trend toward ecommerce. Nonetheless, shutdowns, contactless pickup, and an explosion in online sales are real, and these events offer a glimpse at what the future might hold for the industry.
Raj De Datta, CEO and co-founder at Bloomreach, a digital commerce experience platform, said it succinctly, “The future of retail is marketplaces which require scale, and that will be the case certainly for the big boys. But, the future of retail is also brands. The industry is seeing an explosion of small brands setting up shop online.”
In context, De Datta was addressing the impact of Covid-19 on small retail businesses.
Large retailers such as Amazon and Walmart enjoyed a huge sales lift in 2020.
Amazon as a whole experienced a 39.3 percent increase in revenue in the third quarter of 2020, including a 32.8 percent rise in the sale of its inventory — i.e., the products it sells itself — and a 54.7 percent leap in fees it earns from third-party marketplace sellers.
More recently, Amazon set a Black Friday record, passing $4.8 billion in worldwide sales for the popular shopping holiday.
Similarly, Walmart reported that its ecommerce sales rose 74 percent in the quarter ended April 30, 2020.
Given this success, it would not be surprising to see Walmart, Amazon, and many other large retailers continue to focus on building marketplaces, where they sell their own merchandise next to items from third-parties (other retailers and direct-to-consumer sellers).
But as De Datta noted, many small and mid-sized brands are thriving, too.
These businesses include prominent companies that sell on their own websites to cult-like audiences, as well as lesser-known direct-to-consumer companies that rely on software such as Jungle Scout to identify niche opportunities on Amazon.
So the success of marketplaces and large retailers does not prevent smaller competitors from experiencing growth and success.
The pandemic, however, has not been good for every retail business. Consider Sears, Toys “R” Us, J.C. Penney, and Circuit City. All filed for bankruptcy in 2020.
Similarly, trends toward marketplace selling could pressure low-margin retailers.
For example, in recent years, Shopify has helped popularize a retail arbitrage strategy wherein entrepreneurs use Oberlo’s drop-shipping directory to buy products at nearly retail prices and resell them on Shopify-driven ecommerce sites.
When many retailers sell the same product on a marketplace or elsewhere, margins tend to get pinched. In those circumstances, it is often the retailer with the best supply chain that wins. Thus buying a product on AliExpress, for example, to sell on Amazon may not be profitable if many marketplace sellers offer the identical item.
The broader point is that retail price-arbitrage alone is not a surefire model for success.