Third-party marketplaces will rise to the top of retail, report says

Third-party marketplaces are expected to become the largest retail channel globally by 2027.

That’s one of the big takeaways from a new report by ecommerce provider Edge by Ascential that forecasts the growth of the marketplace model over the next five years.

Let’s dig in:

First, some terminology:

• Marketplaces are retail websites that facilitate display and purchase of products, and serve as a single point for shoppers to access many different kinds of products from multiple brands. In short, these connect a big audience of shoppers with a multitude of brands. Under this model, brands provide products, while the marketplace owner controls the overall shopping experience, including certain policies and costs. This is distinct from an ecommerce store, where a website houses a single brand’s goods, and the brand retains control over different facets of the store.
• 1P vs. 3P: Under a first-party (1P) marketplace model, the marketplace owner acquires goods and sells them on the platform, controlling placement, pricing and assuming responsibility for fulfillment and delivery. With a third-party (3P) model, the brand or seller of the goods acts as the retailer, selling to consumers through the platform.
• It's not an either/or: Marketplaces can have both 1P and 3P. Amazon, for instance, as both.

A growing model: In all, the third-party marketplace model has grown 500% since 2007, Edge by Ascential’s Future of Marketplaces Report states. Amazon launched its marketplace in 2000, and it has been an important engine of the company’s growth since then. In the recently-completed Prime Day, Amazon said third-party sales growth outpaced that of Amazon’s own retail business. Walmart launched its third-party marketplace in 2009, and has recently made moves to step up activity. In China, 3P is even more of a bedrock of online shopping, accounting for 80% of ecommerce sales.

Third-party will be first: According to Edge by Ascential, third-party sales are set to take up a growing share of ecommerce. But it’s not just making an impact in online sales. The report, which was created using Edge by Ascential’s Retail Market Monitor, suggests it will be the fastest-growing channel of retail globally. More projections include:

• Third-party sales are set to account for 59% of all global ecommerce sales by 2027, up from 56% today. In all, third-party sales through online marketplaces will add $1.3 trillion in sales over the next five years, the report forecasts. The fastest growing categories are expected to be grocery and pet products.
• In global retail as a whole, third-party marketplaces will account for 38% of all sales growth.
• First-party sales will decrease share from 44% today to 41% in 2027, even as this channel adds $778 billion in sales over the next 5 years.

Key quote: “The most successful retailers, both now and in the future, will operate third-party marketplaces,” said Deren Baker, CEO of Edge by Ascential, in a statement. “...The consumer brands that will be most successful in this new retail environment will align with the right marketplace partners, optimize their unique capabilities to use all elements of the marketplace flywheel and leverage real-time data and insights to respond effectively to competitive intelligence, performance blockers and changing market conditions.”

Who will the leaders be?: Globally, third-party marketplaces are driving forces behind the top retailers, according to the report. Projections are as follows:

• When considering first and third-party sales, the four largest marketplaces – Amazon, Alibaba, Pinduoduo and JD.com – will account for about two-thirds of all ecommerce.
• Alibaba will be the overall leader in global retail sales in 2027, the report projects, with Amazon in second.
• A prediction: The top five retailers, which includes the group listed above and Walmart, will have third-party marketplaces by 2027, the report states.