Should you open a marketplace?

A lot of retail companies are wondering if they should open a marketplace. Such models offer the promise of unlimited assortment without the need for upfront investment, inventory risk, or costly trading partner integrations. Additionally, marketplaces seem to be one of the reasons why Amazon and Walmart have seen amazing growth in their ecommerce, even during the recent pandemic.

Marketplaces, however, have their drawbacks. Inconsistent customer experiences, uncurated assortments, fraud, complicated returns processes, cannibalization of owned inventory sales, high marketplace technology overhead, and complicated tax codes are some of the many reasons why marketplaces have failed to turn into revenue streams.

That’s why we only recommend marketplace models for retailers with brands that are already associated with unlimited aisle type assortments, or for product categories that require access to longtail items, such as rare books.

Retailers known for curated offerings, however, might want to focus on drop shipping instead.

Drop shipping allows retailers to apply a “less-limited aisle” model while still avoiding costs associated with inventory risk. That means you’ll be able to expand your assortment beyond traditional wholesale open to buys, while still offering a thoughtfully curated experience for your customers. All of which means more customer choice, and hopefully more sales and growth, even as you maintain your brand standards.

PS: If you’re interested in learning more about the pros and cons of marketplace vs. drop shipping, take a look at this article on Practical Ecommerce by our founder Jeremy Hanks.

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