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A New Amazon? Five Considerations Before Expanding Your Marketplace Strategy

By News Creatives Authors , in Small Business , at September 22, 2021

Ethan McAfee is CEO and Founder of Amify, the first turnkey Amazon-as-a-service provider.

Based on the Fulfilled By Amazon (FBA) service, Walmart Fulfillment Services (WFS) is designed to attract more third-party brands to the Walmart marketplace and help them generate more sales. Instead of fulfilling orders themselves, sellers can store and fulfill inventory from Walmart warehouses with a two-day shipping guarantee.

The launch follows other moves that appear aimed to compete with Amazon’s business model, which includes Walmart’s new performance-driven advertising platform and Walmart+, a service widely noted as a challenger to Amazon Prime. Walmart and others like Alibaba, Shopify and eBay are serious about taking on Amazon’s market share in the U.S. But what does this mean for sellers and brands? Do competing websites merit a place in their marketplace strategy?

As someone who helps brands sell more strategically on Amazon, I argue that Amazon should remain the “prime” focus of brands, at least for now. Let me explain why.

1. Other platforms are late to the game.

Some experts think that Walmart — currently the second-largest e-commerce retailer in the United States — can catch up with Amazon. But Amazon has spent more than a decade growing its third-party (3P) marketplace, the “cash cow” where two-thirds of its sales are generated.

Relentless investment in innovation, supply chain logistics and the customer experience could see Amazon gain a 50% share of U.S. retail e-commerce sales this year. Meanwhile, Walmart’s 3P Marketplace sales are just 2% of Amazon’s. And it is likely competing for the same online consumers as Amazon — a loyal base that Amazon has spent years winning over. In my opinion, Walmart has a lot of catching up to do. Keep an eye out on what they’re doing, but leverage partners and industry-leading strategies to continue the growth you’re seeing on Amazon.

2. Walmart’s e-commerce growth is driven by grocery pickup and delivery.

That said, is experiencing strong growth. In 2020, its online sales grew by 79%. However, this increase is largely attributed to a surge in pandemic-driven online grocery shopping, mainly for Walmart first-party sales. Many analysts and researchers question whether any of the e-commerce grocery vendors will be able to scale the market to be profitable long-term. To go head-to-head with Amazon, I believe Walmart will need to see significant growth in other more growth-oriented segments of the 3P market.

3. If you build it, they don’t always come.

Still, private label brands that are already successful on the Amazon Marketplace are unlikely to be deterred by this reality check. Many perceive new platforms as the new frontier or the next gold rush where they can apply their existing e-commerce strategy and get a toehold ahead of the competition. 

But following an “if you build it, they will come” strategy rarely works. Platforms such as WFS may eliminate the shipping and customer service headaches that can hold brands back, but a secondary marketplace requires dedicated time and resources to build and manage. Is it worth the investment? 

Because of the huge disparity in market share, many brands might not have a high enough sell-through rate with new platforms, which could make an investment in additional fulfillment services too costly at this point in time. According to my math — which includes the additional overhead to manage two platforms, cost-of-goods and the infrastructure needed to ship inventory to a separate fulfillment center — sellers in this scenario would be looking at a lower gross margin.

4. The last mile problem.

Another challenge to winning on some platforms is overcoming the last mile. For example, although 90% of Americans live within 15 miles of a Walmart store, the retailer has relied on a patchwork of logistics firms to handle deliveries that have changed frequently. They have just recently started piloting its own fleet of branded vehicles, something briefly mentioned on its last earnings call. Meanwhile, Amazon addressed its shipping issues early in the pandemic and has built what the market sees as a reliable logistics operation that rivals UPS, giving it a clear home delivery advantage for brands and consumers.

5. There is an issue of brand perception

There is also the issue of brand perception. In my experience, consumers often go to what are historically brick-and-mortar companies’ websites in order to “buy online, collect in-store.” But they lean heavily on Amazon when planning any digital purchase — particularly niche products. Indeed, 74% of consumers begin their product searches on Amazon.

Until competitors can give consumers a stronger reason to visit their site over Amazon, their e-commerce strategy will continue to stumble. So, where does this leave sellers who are keen to repeat their Amazon success on a platform like Walmart?

The Bottom Line

My experience and the data tell me that the time is not right for brands to be distracted by a second marketplace, especially one that represents only 2% of the opportunity of Amazon. For most brands, Amazon and their own website should be the main focus areas.

Still, there are challenges that exist on Amazon that cannot be ignored. Things like fierce competition and moving targets when it comes to efficient downstream operations for reasonable margins are always concerns — whether the brand has their own direct-to-consumer website or not. If Amazon is the singular platform a brand is building on, it’s even more important to have a strong operational foundation and the content chops to cut through the noise. Brands need to keep a close eye on how platforms like Amazon are constantly evolving.

Winning on Amazon is hard. Walmart and other 3P marketplaces can be equally challenging. But there is more opportunity and guarantee to move the dial today on Amazon. With A+ content, optimized advertising and supply chain management, sellers can quickly grow their revenues without launching and maintaining a separate marketplace. However, brands should do the math for themselves to see if it’s wiser to invest in growth on their Amazon channel versus ramping up a new one.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?


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