June 30, 2011, 12:00 AM

Online Marketplaces

Web marketplaces attract crowds, but some retailers go their own way.

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Many retailers sell on Internet marketplaces, like those operated by eBay Inc., Amazon.com Inc. and Buy.com Inc., to reach the millions of shoppers that flock to those sites. Amazon, for instance, claimed 137 million active customers in the first quarter of 2011, and 2 million merchants selling on Amazon.com.

These marketplaces make sense for many retailers, especially those selling mass-market products. "Consumers want another destination outside of the typical brand stores, where they can find the best prices and best offers," says Sahir Anand, vice president and principal analyst of retail and banking at research and advisory firm Aberdeen Group, a unit of Harte-Hanks Inc.

Less likely to embrace this strategy, he says, are specialty retailers or luxury brands focused on building their own brands and controlling the shopping experience. And some big retailers fear listing their merchandise on Amazon will make a fast-growing competitor—Amazon's North American sales grew 45% in the first quarter—even more appealing to consumers. Macy's Inc., Gap Inc. and Buy.com stopped selling on the Amazon marketplace this year. Buy.com operates its own marketplace as well as selling merchandise on its own behalf.

Some small retailers also have left Amazon's online marketplace. Richard Sexton, president and founder of furniture retailer Carolina Rustica, which operates one physical store in addition to CarolinaRustica.com, decided to stop selling on Amazon.com last fall because he could not control how many of his products appeared on Amazon. For products not exclusive to Carolina Rustica, Amazon often listed them next to inaccurate product images and descriptions, which could confuse customers, he says. "Customer expectations could be different from our ability to deliver," he says.

But for retailers with sales under $50 million a year, Anand says, online marketplaces are often a good fit.

And even for larger companies they can play a useful role. For instance, underwear manufacturer Jockey International Inc. has stepped up its sales on eBay, roughly tripling them in the past year, according to operations and fulfillment manager Shawn Burwell. Jockey uses its eBay store to sell off overstock and out-of-season merchandise.

There's plenty of activity among the online marketplaces, notably last year's purchase of U.S.-based Buy.com by Rakuten, Japan's leading online marketplace operator. Rakuten has also made investments in the past two years in China, Thailand, France and Brazil. Buy.com last fall implemented a version of the Rakuten Super Points loyalty program.

And the marketplace that created the category in the minds of millions of shoppers, eBay, is investing in making itself more appealing to today's consumers, especially those using smartphones while shopping.

In December, eBay bought Milo.com, a company that enables mobile consumers to search for products from local bricks-and-mortar stores and on the web. That gives consumers access to real-time inventory data for some 3 million products in about 50,000 stores. The company is integrating Milo with its previous purchase of bar code scanning technology company RedLaser so that a shopper can scan a bar code in a store and immediately see prices and availability at other retailers and on eBay.

EBay's sales through mobile are expected to double from nearly $2 billion in gross merchandise value in 2010 to $4 billion this year, the company says.

EBay is also trying to compete by offering incentives to sellers that offer free shipping, hoping to make eBay more attractive to the many consumers who dislike paying for delivery. In one week late in last year's holiday shopping season, more than half of all U.S. online retail purchases included free shipping, according to web measurement firm comScore Inc.

Amazon's unceasing growth—more than double last year's 15% growth for U.S. e-retail as a whole—continues to make that marketplace attractive as a way for smaller retailers to reach millions of shoppers. But for larger retailers leery of Amazon, marketplaces like eBay and Buy.com are trying to make themselves more attractive alternatives.


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