The biggest hurdle for most marketplace sellers, especially those just starting out, is reliable access to capital to replenish inventory. Capital constraints are particularly challenging leading up to and after peak selling times like back-to-school, the holidays or during marketplace-specific events like Amazon’s Prime Day.
But traditional financing companies don’t quite know how to help marketplace sellers because of the unique characteristics of their business models. For example, banks are still dependent on traditional credit reporting to make their lending decisions.
Since the marketplace model is relatively new, the vast majority of the merchants selling through that channel are new too, meaning they do not have the track record that banks look for when providing loans. In addition, most small businesses (whether they are e-commerce sellers or not) have trouble getting financing in the first place, with about 80% of small businesses who apply for commercial bank loans get denied.
In other words, traditional financing fails to service businesses that are healthy and thriving, simply because banks are not in a position to understand the data and metrics marketplace sellers use to communicate their value, but new fintech entrants are taking on that challenge and making financing decisions based on new data and information.
That leaves an opportunity for alternatives such as Amazon Lending, Shopify Capital, PayPal Working Capital and other online lenders that cater to marketplace sellers.
E-commerce sales have grown sharply over the last several years. As a result, most emerging retailers are opting to forgo the traditional brick-and-mortar model, instead selling their goods through online marketplaces like Amazon, Etsy and Walmart.
The industry is also seeing several new, niche marketplaces emerge, like Tophatter and GOAT, that serve highly targeted, sometimes niche consumer audiences, giving those sellers a unique opportunity to expand quickly. In fact, revenues for marketplace platform providers across the globe are predicted to more than double from $18.7 billion in 2017 to $40.1 billion in 2022, according to Coresight and Juniper Research.
And there’s no slowdown in sight. The National Retail Federation estimates that e-commerce sales will increase 10% to 12% in 2018—nearly three times the rate of the traditional retail industry. But it’s not just consumers fueling this rapid growth; third-party sellers are also supporting expansion by increasing the amount of goods and services offered through these marketplaces. In fact, marketplaces achieved record growth of 30% last year, doubling the growth of overall online retails.
And while there are several factors playing into this expansion, individual verticals like the online resale market, or re-commerce, are propelling new marketplace growth forward, as sellers looking to sell used merchandise find more targeted consumer audiences on marketplaces like Poshmark and ThredUp. A 2017 Statista survey found that nearly 75% of American consumers have bought a used item at least once in the last year.
Although there is tremendous growth and opportunity for success, the competition is also heating up, among sellers and even the marketplaces themselves. Most marketplaces have made it relatively simple for sellers to establish themselves and start selling on a new channel. But, the battle for consumer demand can be fierce. As marketplaces allow consumers to very quickly and easily compare pricing, features and seller reviews, loyalty to any one seller is essentially nonexistent.
A byproduct of this increased growth and competition is a corresponding boom in services and tools aimed at supporting sellers. When the ecosystem of vibrant sellers is adequately supported, it allows marketplaces to thrive, grow and differentiate to attract and retain the best sellers. From specialized inventory management suites, to automated repricing solutions, to programmatic advertising software it seems the technology world is looking closely at online marketplace support as a viable business opportunity.