One of every five beauty purchases online is made via the Amazon marketplace, according to a new report.
There's little uniformity in rules across web marketplaces, forcing retailers to choose which ones are worth the trouble.
For online merchants, it's never been easier to reach shoppers without changing their behavior. Want to reach the 130 million consumers who have active Amazon.com accounts? Join the 2 million sellers on its online marketplace. Want to reach shoppers loyal to Sears Holdings Corp.'s Sears and Kmart online sites? Sell on the Sears Marketplace. Want to reach the 94.5 million active users who cull through eBay.com for bargains? Set up shop on eBay.
The opportunities are ripe for merchants to piggyback on other sites' traffic because there have never been more major retailers allowing other merchants to sell on their sites. Three of the eight largest North American online retailers—Amazon.com Inc., Wal-Mart Stores Inc. and Sears—have online marketplaces, as does Buy.com Inc., the 32nd largest e-retailer in North America by revenue. Newcomers like Sears and Walmart.com, which both opened up their sites to outside sellers last year, no doubt hope to emulate the spectacular success of Amazon's marketplace, which last year accounted for 31% of sales on Amazon.com, a 3.3% jump from 30% in 2009, and a 10.7% increase from 28% two years earlier.
But the opportunity that comes with each new big marketplace that opens up on the web comes with a considerable cost, as it means a seller has to comply with a new set of rules. Sears and Wal-Mart each bring their own strategy to the marketplace arena, and Buy.com has been adjusting course since it was purchased last year by Japanese marketplace operator Rakuten. As a result, marketplace rules on returns, free shipping, customer service and more are likely to remain inconsistent for some time to come.
That poses the question for an online retailer considering each marketplace: Will I sell enough on this site to justify the hassle of complying with a new set of rules?
For Angela Fiorelli, the answer was no. "We're not that big a company, and we couldn't realistically keep up with various sites' policies," says Fiorelli, owner of women's apparel retailer Fashion Mommy. She's decided to limit her sales to her own web site and a single marketplace, eBay.
But Darrin Walters, co-founder and partner in Champions on Display, a sports collectibles retailer, felt the sales were worth the extra effort to sell on Amazon, eBay and Buy.com. Worth it, the retailer decided, even though selling on Buy.com meant overhauling its entire SKU naming process when it began selling on Buy.com because the retailer limits SKUs to 30 characters—10 less than Amazon's limit.
"We don't feel that we could sacrifice having these SKUs on Buy.com just because our naming convention did not match their requirements," Walters says.
That's because marketplace sales account for 80% of the retailer's business and that percentage is growing. "At one time our web site was the least expensive way for us to do business," he says. "But over the years the cost of marketing for our site has gotten to the point where the costs are about the same as on the marketplaces."
While Walters can justify the marketplaces' fees, that doesn't mean they're consistent. They're not, and that forces retailers to consider whether they should charge consumers the same prices on each site they sell on.
The fees don't just vary, they're complicated. Buy.com doesn't charge a subscription or listing fee and its commissions range from 8% to 15% plus 99 cents. EBay's subscription fees range from $15.95 per month to $299.95 per month, and with a subscription its listing fees range from 3 cents to 20 cents per item; its commissions on fixed-price items are between 8% to 15% of the first $50 of the selling price, between 5% and 9% from $50 to $1,000 and 2% for the value above $1,000. Both Amazon and Sears fall in between with subscription fees of $39.99 per month; Walmart.com doesn't disclose its pricing structure.
Given that a retailer will pay a different commission on eBay than on Amazon, for instance, there are two schools of thought on pricing across marketplaces: Keep it simple and charge the same everywhere, or adjust prices based on fees and the costs associated with complying with a marketplace's policies.
Champions on Display develops a different pricing formula for each of the marketplaces it sells on that takes into account factors such as the marketplace's fees and required shipping options and costs.
"We used to try to have uniform pricing regardless of the site, but we abandoned it because it doesn't work because the policies of each marketplace are different and so are the fees," Walters says.
But eBags takes the opposite approach, keeping prices the same on the 30,000 SKUs it sells on nearly 20 sites, including comparison shopping engines like Shopzilla. The web-only retailer of handbags and apparel takes that approach because it's concluded that price is the key factor in determining where many consumers purchase, and that online shoppers know how to find the best price.
"We have to be competitive," says Peter Cobb, senior vice president of marketing. "Consumers are now so sophisticated that with a couple clicks they can derive what is the best price on the Internet."
Retailers also have to consider how their pricing policies will influence their ability to land prime positions on various marketplaces. For instance, retailers that offer free shipping on eBay get better placement on search results. But Amazon, Sears and Buy.com's search results feature a "buy box"—a box high up in search results that shows what the marketplace deems the best result for the consumer's search, and the box consumers often click on. Total cost to the consumer, including shipping, is more important than whether the retailer offers free shipping in determining which merchant lands that coveted spot. Walmart.com doesn't allow multiple sellers to sell the same item.