This month, Kroger announced that it will offer an extended ship-to-home assortment through a new third-party marketplace offering. In a third-party marketplace model (or “marketplace”), the operator facilitates shopping from many different sellers. The operator of the marketplace does not own the inventory, instead presenting other sellers’ goods to the shopper and facilitating the transaction. Kroger launched Kroger Ship in August 2018, which offers an assortment of items online that are shipped to the consumer’s home. Kroger anticipates the marketplace will add 50,000 additional items that will be available to customers across multiple categories, including natural and organic, international food, specialty items, housewares and toys.
Kroger’s competitor Albertsons launched an online marketplace in October of 2018, but as of June 2020, the Albertsons Marketplace page offers the message, “Please stay tuned for a new and improved Marketplace experience in the near future” – signaling that their first experience wasn’t as successful as they hoped. Marketplaces present a unique challenge for grocery retailers because most visitors to a grocer’s website are looking to place an order from the store’s inventory, which will be delivered directly to the consumer’s home or picked-up curbside. However, marketplace items are typically not carried in the store and are shipped to the consumer’s home, direct from the marketplace seller.
Marketplaces have been in the news recently as Amazon, the U.S.’s largest marketplace, provided testimony before the U.S. House of Representatives Committee on the Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law late last month. Fortnight publisher, Epic Games, is now in a very public dispute with Apple and Google over the terms of their App stores, representing another form of a two-sided marketplace.
Third-party marketplaces are an important and valuable form of retail. A large portion of worldwide e-commerce happens on marketplaces. Alibaba’s T-Mall, JD.Com, Mercado Libre, and Rakuten are all examples of e-commerce-based marketplaces. Worldwide, Forrester estimates that over 60% of all e-commerce sales are via marketplaces. Marketplaces are also an important component of the U.S. e-commerce market. Amazon, eBay, and Etsy all derive the majority of their U.S. sales from a marketplace model. Walmart, Target, and many other U.S. retailers operate a marketplace as a component of their business. Many other retailers sell vendor-owned inventory in a similar model to a marketplace called “drop shipping.” Finally, one of the original forms of a marketplace, the consignment shop, has been part of U.S. retail for more than 70 years.
Marketplaces have been good for consumers, generally offering greater assortment and competition, which has driven prices down. Marketplaces have also been incubators for American innovation, enabling the birth of companies as large as eBay and Etsy as well as innovative newer companies like StockX and The RealReal. Marketplaces are also behind many other shopping experiences. When a consumer buys a product from Google Shopping or Instagram Checkout, orders groceries from Instacart, or a meal from Door Dash, they are effectively using a marketplace.
In addition to consumers, marketplaces have significantly contributed to the U.S. economy and created many jobs.
A lot of recent discussions around marketplaces have centered around the fairness of marketplaces. Is it fair for Amazon to give its own products a competitive advantage over those being sold by others on the Amazon marketplace? Of course, retailers have always picked winners and losers, choosing to carry some products and not others, deciding which products get favorable shelf space or appear in store circulars. Today, it’s common for retailers to sell their products right next to those of other brands. Unless the retailer or marketplace operator achieves monopoly status, it’s not clear they have an obligation to fairness.
However, as marketplaces continue to grow and play an increasingly important role in consumers’ lives, all parties must be protected by solving some of the potential pitfalls of marketplaces.
Data Privacy – Both consumer data and marketplace seller data should be protected. Marketplaces need to be transparent about their data use policies, including if and how they will collect and use sales data from third-party sellers. Safeguards need to be in place to ensure that those data policies are followed.
Seller Transparency – Consumers must be able to know who they are buying products from. Marketplaces should be required to verify seller information and disclose that information to potential buyers.
Product Authenticity – Shoppers must be protected from counterfeit products, and intellectual property rights respected. Marketplaces cannot be allowed to become a convenient distribution point for counterfeit and pirated products.
Product Safety – Shoppers must be confident that products purchased from a marketplace are safe, comply with all appropriate regulatory standards and are not subject to a product recall. When consumers buy a product from a marketplace that is subsequently subjected to a product recall, there must be a means of reliably communicating it to the buyer.
No single entity can solve these challenges. Marketplace operators, sellers, and regulators need to develop practical solutions to these challenges in coordination with each other. Together, we can ensure that retail in general, and marketplaces in particular, continue to be a significant driver of the U.S. economy and of U.S. innovation.
