The Proliferation of Marketplaces

As brick & mortar retailers build their future of connected commerce, they have turned to marketplaces to maintain growth.  The COVID-19 pandemic has accelerated this trend, with major retailers like Albertsons, Safeway, and Kroger expanding their marketplace offerings. Walmart, which has been building its marketplace for over a decade, is a prime example of this acceleration. However, there has been little discussion about the implications for large brands with an established in-store presence.

Most vendors are focused on driving ecommerce sales of their products in distribution. The question arises: Should large brands be concerned about retailer marketplaces? Should they view it as competition or as an opportunity?  We will focus on Walmart as the model for the industry.

The Role of Walmart Marketplace

Despite a common sentiment that online shoppers seek “instant gratification,” the reality is that waiting days for an item to arrive is not instant gratification, especially when consumers could spend an hour picking it up at a store. So, why did Walmart need a marketplace to compete?

Launched in 2009, Walmart Marketplace was designed to compete with Amazon’s growing catalog and the channel shifting consumers. While purchasing online is easier for some shoppers, it became clear that others choose not to be limited to the in-store assortment. Walmart Marketplace was launched to fill the assortment gaps, providing a broader selection that might not be available in physical stores.

Despite this, large brand houses often dismiss marketplace items as insignificant competitors. Small brands on the marketplace are no match for the established in-store distribution prowess of a Walmart account team. However, as early as 2016, Walmart warned their big vendors that their online presence could impact their in-store distribution. Poor ratings and reviews on Walmart.com could lead to delisting, emphasizing the growing importance of ecommerce to Walmart’s overall strategy.

Marketplace Sellers Gaining Distribution?

While Walmart’s marketplace still trails the gargantuan roster of 3P sellers on Amazon, Walmart.com sellers are gaining traction. Experts like Michael Lebhar, CEO of Sellcord, highlight that successful marketplace sellers can catch the eye of category buyers and even land in-store distribution. This shift raises the question: Can brands afford to ignore the marketplace?

The Future of Hybrid Walmart Sellers

Selling profitably as a third-party (3P) seller on the marketplace is challenging. Michael Lebhar’s Sellcord is among the few groups believed to have cracked profitable marketplace selling. However, for large brands with significant annual sales as Walmart vendors, the potential value of the marketplace is not limited to sales and profit. There are strategic uses of the marketplace for 1P sellers to consider:

• Driving In-Store DistributionBrands can leverage marketplace growth to secure on-shelf distribution. Launching a new product involves significant risk, especially when distribution with Walmart at launch is never guaranteed. Using the marketplace to demonstrate success can strengthen a brand’s pitch for in-store distribution
• Protecting FacingsLarge brands need to monitor new competitors closely, just as retailers do. The marketplace is a great way to keep an eye on emerging brands. By listing potential SKUs for incremental facings, established brands can preemptively secure their market position.
• Testing Secondary PlacementSecondary placement for existing products is often a coveted win for Walmart vendors. However, the need for unique SKUs creates complexity for the vendor and Walmart - a daunting barrier to a successful sell-in. The marketplace allows vendors to test these strategies without the logistical burden, targeting secondary category buyers to build a compelling sales story.

Conclusion

Walmart hybrid selling has not been extensively explored, particularly in terms of its strategic potential rather than fulfillment logistics. It remains to be seen how Walmart will navigate large brands testing these opportunities. However, the marketplace undeniably poses a risk to large 1P brands and their in-store distribution. As marketplace sellers gain traction and transition to in-store distribution, brands will need to address this dynamic.

Instead of waiting, large brands should consider auditing their competition on Walmart.com and assessing the marketplace landscape. If marketplace competitors are hard to track, it could indicate a greater risk to established brands. Embracing a hybrid approach may be the key to staying competitive in this evolving retail environment.