The State of Ecommerce and Marketplace: A 2019 Evaluation [w/ Infographic]
Global retail ecommerce sales will touch $3.5 trillion by the end of 2019. Out of this marketplaces has a major share and is redefining ecommerce. The marketplaces grew their total ecommerce sales last year by 20% to $2.1 trillion, and now account for close to 60% of global ecommerce revenue. When you talk about marketplace there’s no way one can exclude Amazon out of the conversation, this year sellers on the Amazon marketplace sold $200 billion worth of products. A new landmark in itself.
As online consumers discover the breadth of products and lower prices on top marketplaces especially the ones operated by Amazon and Alibaba. It is driving global e-tailers to develop more aggressive marketplace strategies, including increasing the breadth of products on offer and launching their own marketplaces by inviting other merchants to sell on their platform.
As this year comes to a close let’s looks at the state of Ecommerce and marketplaces to figure what’s to come next. Here we take a look at the top 10 trends that defined the marketplaces in 2019. Since Amazon is the undisputed market leader many of our data points will be in reference to Amazon.
1) International Ecommerce Growth- When you look at the state of global ecommerce it’s not difficult to see why United States’ share of global sales is decreasing mostly on account of the increasingly borderless state of commerce. But you actually have to look at the numbers to see how steep and rapid this decline truly is. While at one point U.S. held ecommerce supremacy, in 2020 its total stake over global ecommerce will be less than 17%.
As you can see Asia Pacific is growing rapidly, as per the estimates by 2023, retail ecommerce sales in Asia Pacific (APAC) are projected to be greater than the rest of the world combined. This growth is driven by 3 key factors.
– Rapid urbanization and technological advancements
– More than 85% of new middle-class growth now resides in APAC
– Government and private-led initiatives in China.
2) Third Party continues to party – Third party sales have shown a very robust compound annual growth rate of 52% since 1999. They now account for over 60% of total sales on Amazon. In the last 2 decades the overall GMV (Gross Merchandise Value) for overall (first party + third party) online sales grew from $1.7 billion to $277 billion. Over the same time period first party sales grew from $1.6 billion to $117 billion.
3) FBA (Fulfillment By Amazon) Continues to Grow – FBA is a program that allows sellers to give control of their warehouse operations to Amazon for a fee in exchange for a Prime Checkmark. As on date more than 85% of the top Amazon sellers in the US market offer Prime shipping for more than 50% of their products online. This service launched in 2006 has now become a centerpiece service. Not just in US but on a global level as well this strategy has really helped Amazon to scale really fast. Because almost all international sellers use FBA as it helps them to cut down on shipping times. Now FBA itself is changing as Amazon is intending to use it as a just a fulfillment service as opposed to both storage and fulfillment which has increased the complexity for seller.
4) The Chinese Experiment – For Chinese retail businesses Amazon was the most effective direct-to-consumer platform to reach the US and European consumer markets. As on date 42% of all active sellers across all the 16 amazon global marketplaces are based out of China. Even on Amazon in US over 36% of active sellers are Chinese. The success of this model was also the enablement FBA offered which actually helped eliminate slow shipping but on the flipside it also provides gateway to lower quality and counterfeit products. But despite its best efforts the Amazon simply didn’t grow at the same rate the Chinese ecommerce market was growing. Even when the ecommerce penetration was 15% for China, Amazon remained at less than 1 percent of the market. This was the reason they decided to pull the plug on Chinese market.
5) Brands Not Happy on Amazon – More than 75% of Amazon searches are unbranded that means seeking generic products rather brand names. For example shoppers are asking for “training shoes men” or ” sneakers for women” rather than asking for Adidas or Puma shoes. If we look at the keywords data it very clear that Amazon shoppers’ behavior has shifted from brand driven searches needs based searches. This isn’t a particularly good news for brands that spend millions of dollars on brand building as it all gets nullified in the crowded marketplace. As a result of this brandless searches Amazon has been able to grow AmazonBasics products. And to make matters even more difficult other any seller can bid on brand names and still apprear as sponsored product over the organic results.
6) AmazonBasics is Growing – Whereas on one side the brands have found it difficult to grow, AmazonBasics has been on a growth trajectory in 2018 and 2019. The sheer number of AmazonBasics best seller has grown more than 50% in year 2019. Amazon has figured the science of continuous new launches, demand validation and truncating those products that fail.
7) Amazon Private Labels – One more area again where Amazon has not been able to really pull it off is Amazon owned private labels. Only exception being when using its own brand name (AmazonBasics & Amazon Essentials). Hundreds of brands launched and thousands of products under them have not yielded the desired result for Amazon. Here’s where retailers like Target have an edge over Amazon due to their brick and mortar stores. It’s just that limited inventory and better discovery model of a retail store is just better fit for introduction of new brands. Ultimately Amazon’s model is search heavy and weak on discovery which makes it really hard for private labels.
8) The Rise of Social Commerce – Talking about discovery, most ecommerce platforms are search based, they do very little to aid discovery. However in recent times a distinct ecommerce category has emerged one which is embedded into our social networks. Doing ecommerce on the social networks really fits into the actual definition where people hangout to trade and exchange products and services. Its one model if cracked correctly can really usurp Amazon as the market leader as it tries to combine product discovery and commerce. While many have tried to adopt this model on Instagram has come closest to executing this. For clothing and beauty products category it has become dominant platform for product discovery. However there is friction after a product is discovered as you have to move out of the platform to purchase. Instagram is trying to address this via Checkout. Using this a shopper can purchase a product without leaving Instagram.
9) Everyone is After Ad Budgets – While Amazon platform is heavily search led, it’s continues to expand the reach and sophistication of its advertising products. It’s has been one of the early companies to focus on performance marketing. Sponsored products, an ad unit appearing on search results is still the one responsible for majority of its ad spend. Brands and retailers are known to have spent over $9.85 billion on advertising on Amazon which is a massive 33% increase over last year. By 2021 this figure will grow upto $17 billion and will have close to 10% of the overall ad market in US.
10) Amazon B2B – Amazon B2B has been growing silently by the side and many have ignored it as it doesn’t have B2C like hype. Yet the fact is this side of business is growing faster the B2C retail operations launched in 2015 it $1 billion GMV in within a year and grew past $10 billon figure in 2018. It’s expected to hit $50 billion globally by 2023.
To Sum It Up…
Even though there are challenges for Amazon that come from having the kind of scale it has like counterfeit, fake reviews, fraudulent sellers it continues to grow. In fact the US e-commerce has grown 17.3% in the 3rd quarter of 2019. Apparently the fastest growth since the fourth quarter of 2011. In the coming years Amazon will focus more on developing international markets as that’s where the growth lies. Marketplaces will continue to grow both is US and elsewhere while earlier there were a just a few players now it be populated by lot of specialized players focused on niche categories.