It’s clear to anyone with purchasing power that ecommerce is the future of retail. We’ve all seen the statistics: Ecommerce sales are projected to grow to $933.30 billion in 2021, up 17.9% from last year.
A contributing driver of this growth are third-party marketplaces, including Amazon, Alibaba, eBay and others, which accounted for 62% of global ecommerce sales in 2020, and $773 billion sold through U.S. marketplaces alone. In fact, Amazon sees nearly two million sellers offer products through its marketplace, which account for 56 percent of the items sold on the platform.
While marketplaces have made it easier than ever to launch a digital-first brand, the process of getting products to a customer’s door has never been more complex, and marketplace aggregators will face challenges and frustrations handling the supply chain complications.
Complexities of Ecommerce Fulfillment
Managing the supply chain for one brand is difficult. Scaling operations for dozens, or even hundreds, of brands, developed using disparate logistics and fulfillment systems, for products that often have individual storage, packaging and shipping requirements? The logistics are so intricate, the mind boggles.
Marketplace aggregators will face specific, specialized challenges that are unique to the sector. Many of the brands they acquire will rely on Fulfillment by Amazon, or FBA, because of their origin on the Amazon Marketplace. In fact, approximately 57% of marketplace sellers exclusively use FBA for order fulfillment.
These brands are also subject to the numerous limitations of the FBA service, including restricted shipments (i.e., the early days of the pandemic, when only essential items were accepted), inventory caps, capacity constraints and a refusal of meltable products from April through October. A beauty brand, for instance, may be forced to find an alternative fulfillment option for soaps and cosmetics for at least half the year.
Other brands won’t meet the requirements for FBA because of minimum inventory or storage requirements. Seasonal products that sell high volumes just a few months of the year – like calendars – are an example.
Control Over Complexity
In order to take control over these complexities and develop fulfillment contingency plans, some marketplace aggregators may move into the logistics space by acquiring warehouses and building their own fulfillment networks. This may not be the best model for success.
An owned and operated fulfillment network is capital intensive, and vastly limits flexibility and agility – critical components of a fulfillment strategy, as the ability to distribute and fulfill product closest to customers drastically drives down shipping costs and transit times. With so many brands under one aggregated umbrella, a fixed network makes this approach nearly impossible.
Others will seek to outsource fulfillment, an immediately actionable, lower capital approach. Outsourcing offers the leverage of industry experts whose core competency is e-commerce fulfillment, and who have built their offerings with the specific needs of digital-first brands in mind. While outsourcing may feel like giving up control, it also allows aggregators to tap into bleeding edge technology, and enables limitless scale and flexibility as logistics networks can adapt as needs change.
The Omnichannel Imperative
Modern shoppers demand the ability to buy wherever they’re shopping, be it a marketplace, a social platform, or direct from a brand’s owned and operated ecommerce site. This is more important for marketplace aggregators to consider than one might think.
Though the attention today is on Amazon brands, aggregator companies shouldn’t focus solely on Amazon for too long. Aggregators will need to diversify away from Amazon to increase valuations and accelerate growth, and the ability to offer omnichannel will be essential as ecommerce continues to grow.
Omnichannel fulfillment allows brands to connect all their storefronts and shopping channels with an integrated fulfillment system, and provides a birds-eye view into inventory and orders from every channel. For aggregator companies, this means a comprehensive and accurate understanding of individual brand performance, channel-level sales, and insights that can lead to further optimization. Omnichannel also ultimately leads to increased customer satisfaction, as it provides the ease and convenience that elicits brand loyalty.
The opportunity for marketplace aggregators is clear, and the challenges they face can be overcome. Those that will succeed will think now about the future of retail, and build an infrastructure that can support an omnichannel/ecommerce-driven market.
Ben Eachus is co-founder and CEO of Flowspace