The race for eCommerce growth is changing course. After years of chasing scale by adding more products and categories, retailers now see that bigger isn’t always better.
Yet, retailers want to give customers as much variety as possible and to do so cost-effectively, many are looking to expand online catalogs with third-party products alongside their own.
It’s easy, then, to understand the surge in specialty marketplaces, where retailers bring together sellers within a specific category and curate products for customers.
According to Boston Consulting Group, marketplaces now account for 67% of global eCommerce sales, an increase from 40% only 10 years ago. Additionally, 70% of consumers prefer shopping with specialized marketplaces over “everything stores” when prices are similar. The reason? Consumers are tired of scrolling through endless options and want brands to filter out the noise and show them personalized, high-quality products.
As eCommerce moves into a phase where product expertise and curation matter more than having the largest catalog, specialty marketplaces are becoming the next battleground in retail.
The broad appeal of specialty marketplaces
The marketplace model is so enticing because it scales fast and with less risk. Third-party sellers handle product sourcing, pricing, merchandising, and shipping. Retailers can then expand their catalogs without the burden of carrying inventory.
Without as much heavy lifting, retailers can reap financial rewards. Marketplaces generate commissions of 8% to 15% on average transactions, and up to 30% in fashion, according to BCG research. With typical margins of 7% to 9%, specialty marketplaces deliver an attractive return for a relatively low investment.
Beyond profits, marketplaces also give retailers valuable purchasing data showing what sells and what doesn’t. This data helps retailers personalize customer experiences and make smarter decisions regarding merchandising, marketing, and customer support.
Specialty marketplace adoption ramping up
Given the benefits of marketplaces, retailers across verticals are investing aggressively.
Consider a few use cases:
- Kingfisher’s B&Q home improvement marketplace in the UK turned profitable immediately, driving 41% of its total e-commerce sales.
- Decathlon expects its sports apparel and gear marketplace to reach $1.1 billion in sales by 2026.
- Janie and Jack opened their marketplace earlier this year, focusing on an expanded selection for children, including home furnishings, toys, wellness, and kids’ gear
- 1800-Flowers online marketplace features curated items from local sellers across several product categories as a strategy to expand upon customers’ gifting needs
These retailers reflect an industry-wide recognition that brands with established customers can run successful specialty marketplaces built on expertise and trust.
Ulta Beauty’s bold expansion into marketplaces
Another high-profile example is Ulta Beauty’s decision to launch a specialty marketplace. Already a leader in U.S. beauty retail, Ulta Beauty has recently opened a curated marketplace, UB Marketplace, to accelerate the discovery of new brands, subcategories and trends.
The goal is to leverage deep category knowledge to thoughtfully offer a range of new and innovative brands while maintaining the customer trust it has nurtured over the years. And to further instill trust, Ulta Beauty’s marketplace is invite-only for brands who meet the retailer’s criteria – not an open third-party marketplace for resellers and distributors. The launch of UB Marketplace is a strategic move that reinforces Ulta Beauty’s position as a leader in the beauty industry.
With UB Marketplace, Ulta Beauty is showing what the future of eCommerce looks like: a successful retailer evolving from a merchant to an ecosystem builder, bringing together the right mix of products in its space.
Seize the marketplace opportunity
The opportunity with specialty marketplaces is real, but so is the urgency. Marketplace platforms take time to build. They require signing up sellers, creating a seamless customer experience, and fine-tuning operations. Retailers that move first are in a better position to gain long-lasting loyalty from customers.
But customers aren’t standing still either. Boston Consulting Group found marketplaces outperform traditional eCommerce in six of the nine categories shoppers care about most, including product variety, delivery reliability, and pricing. And customer expectations are only going to increase as more specialty marketplaces come online.
Finally, the conditions for marketplaces are ripe for investment. Compared to traditional store expansions or inventory-heavy strategies, marketplaces don’t require as much capital and offer steady commissions. With margins on marketplaces currently at 8% on average, C-suites view them as smart bets.
The future of eCommerce is curated
Specialty marketplaces are fast becoming the foundation of retail growth. They don’t succeed by showcasing “more of everything,” but by curating in-demand products and delivering the expertise and reliability that today’s shoppers expect.
From Decathlon to Ulta Beauty, retailers embracing the marketplace model are generating new revenue streams and strengthening relationships with customers. The marketplace urgency is clear, and retailers that hesitate risk playing catch-up in an industry where first movers often hold a permanent advantage.