Multi-vendor marketplaces: the next generation of retail ecommerce

In 2010, ASOS took a bold risk. The online fashion retailer had established itself as a global fashion hub over the previous decade by focusing on selling clothing and accessories featured in films and on TV shows. But as it celebrated its 10th birthday, co-founders Nick Robertson and Quentin Griffiths launched ASOS marketplace, allowing independent boutiques and vintage sellers to sell their clothing via its online platform.

It was a roll of the dice that paid off. After launching with just 20 carefully selected sellers, its marketplace now boasts a roster of 800 boutiques across multiple continents. Its success has given it a crucial competitive advantage. Curated diversity has generated an expansive catalogue of brands and products, and attracted new consumers with differing tastes. By selecting global sellers, ASOS has also been able to expand its reach into new international markets.

The rise of multi-vendor marketplaces 

In 2024, marketplaces dominated the ecommerce landscape. In the US, marketplace sales represent over one-third of all retail ecommerce sales and are expected to grow by over 10% year-on-year from $385bn (£296 bn) in 2023 to $603bn (£464bn) in 2027. This change in business strategy, from pure retailer to marketplace, is driven by the desire of retailers to future-proof their businesses. By diversifying their product offerings and responding quickly to consumer trends in a low-risk manner, the marketplace model gives retailers the agility they need to stay competitive. 

“The traditional wholesale model is risky,” says Jon Bolt, CEO of Onport, a leading multi-vendor marketplace and dropshipping automation platform. “Traditional retailers typically purchase inventory in large quantities, store it in warehouses or storefronts, and then wait for customers to make purchases. This approach carries the risk of stocking items that may not sell, often leading to markdowns at the end of the season. In contrast, a dropshipping marketplace model provides retailers with a flexible alternative, allowing them to explore new product categories without the burden of holding inventory.”

Dropshipping and marketplace models

Retailers must start by deciding upon their preferred ecommerce model. With dropshipping, customers make a purchase and pay the retailer. The retailer then buys the product from the vendor, which handles packaging and shipping under the marketplace's brand. Here, the retailer makes a profit from the difference between the cost of the item and the price they sell it for. In contrast, the marketplace model sees retailers route orders to the vendor, which handles delivery under its own branding. Retailers receive a commission on each sale. 

But different retailers may have subtle differences in their relationships with vendors. Deciding on the nuances of each model is an important strategic decision to provide clarity to both the end consumer and vendor. In some instances, retailers adopting a dropshipping model may wish to make it clear to consumers that they’re buying a product from a third party. This transparency helps set accurate expectations for customers regarding aspects like shipping times, return policies and customer support, which may differ from the retailer's usual methods. By clarifying the role of the third-party seller, retailers can build trust and offer a more seamless shopping experience. 

In others, retailers may be reluctant to disrupt the normal customer experience and decide to absorb all customer service and logistics on behalf of the vendor. This flexibility means retailers can adapt their approach to make the marketplace model work for them. 

Trust in technology

Technology is key to ensure retailers, vendors and consumers enjoy a seamless marketplace experience. A decade ago, retailers hired web designers or agencies to build their ecommerce websites from scratch. But advances in technology have made it easy for retailers to build their own marketplaces at a cost effective price. 

With multiple platforms available, choosing the right partner to build and deliver best-in-class shipping, inventory management, payments and returns and order routing is a critical decision. Onport is the technology partner of choice for 200+ retailers, including Stadium Goods, Cupra, Ivalo and Naduvi. The multi-vendor dropshipping automation platform uses composable technology to empower retailers with simple and flexible tools to establish agile and scalable multi-vendor operations at speed. 

“Retailers have diverse goals, so it's essential to have a technology platform that can support those unique needs," says Bolt. "Many retailers prioritise a flexible order routing system - one that, for instance, can identify the nearest seller to the customer or prioritise sellers offering the best commercial terms. As business objectives evolve, having a platform that can scale and adapt accordingly becomes a key factor in long-term success.”

The curated marketplace

Amazon is the most successful marketplace in the Western world. When Jeff Bezos founded the company in 1994, he outlined a grand vision for the company to become ‘The Everything Store’. His aim was to create an online marketplace where consumers could literally buy any product in any category and enjoy an unrivalled customer experience. Mechanisms such as the one-click delivery button and rapid delivery and returns processes were key to its growth. Today, 50% of online product searches start on Amazon.

But Amazon’s approach has opened the door for retailers to differentiate and win market share ahead of competitors by creating curated, personalised experiences for consumers. “Amazon isn’t built to offer a highly personalised experience to every customer. Today’s consumers prefer to shop with retailers that resonate with their values and communicate with them directly. A curated marketplace model provides significantly more value to shoppers than a one-size-fits-all approach. As ecommerce continues to evolve, tailored shopping experiences will play a crucial role in shaping its future.”

Success stories

To create a curated marketplace, retailers must understand the wants and needs of their target audience. By focusing on a new and specific category that lends itself to the retailers’ niche, they can create relevant experiences that are tailored to consumers. Onport client Hole-19 began as a free golf app featuring GPS, scorecard and tracking technology. To appeal to more golfers and create a new revenue stream, it launched its own marketplace. It now sells a wide range of golf apparel and equipment from a host of leading golf brands and provides users with personalised recommendations unique to their game.

Bolt says the decision of Hole-19 to launch its own marketplace made perfect sense for the business and vendors, while creating value for consumers. “The marketplace business model was a natural fit for their app, allowing them to showcase the best golf gear to millions of enthusiasts. Beyond that, the platform enables highly personalised product recommendations and authentic reviews. For consumers, it’s a smart choice - they’re buying from a company that truly understands golf and offers unbiased insights, unlike purchasing directly from brands.”

Building an ecommerce business used to be fraught with risk. To expand, retailers typically had to buy and stock all the products made available online, exposing themselves to the risk of unsold inventory, all while having to manage their own inventory and set up their own logistics operations. If the goods didn’t sell then the business swallowed the costs, while continuing to pay rent on the warehouse space needed to store inventory.

Responding to the need for a flexible model that enabled retailers to adapt to shifting consumer demands, dropshipping and marketplace ecommerce models were developed. Both models allow retailers to sell goods without having to carry stock or ship inventory directly. Now, it's possible for retailers to offer wider product ranges with less risk, and grow their businesses with fewer capital investments.

But how exactly do these models work, and which one should a business choose? Put simply, a marketplace acts as a platform that connects multiple sellers directly to consumers. The retailer acts as a middleman, enabling various merchants to showcase their products on the retailer's website and take commission on every sale. 

Ebay and Amazon are obvious examples but more interestingly, a host of other retailers including Marks & Spencer, Asos and Next, are now adopting the model to expand their core offerings without the upfront costs. Most combine the model with dropshipping or the traditional in-stock approach, where they store and sell their own goods.

‘We’re driving new customers to shop with us’

The benefits of a marketplace approach is that it allows a retailer to offer consumers more choice, including products they wouldn’t normally stock. Back in 2020, Next boss Lord Wolfson said that the “the proliferation of choice” was behind the retailer’s decision to build out its Label marketplace, bringing rival brands under one roof.

“We have little doubt that the presence of competing brands increases the competition for our own, higher-margin, Next-branded products, but we believe that longer term it is the only way to survive in the online world,” he said.

It is a similar story at M&S which now sells around 90 third-party brands alongside its own offerings. Speaking to trade magazine Just Style this year, its director of third-party brands Nishi Mahajan said it had helped the firm “grow relevance and build market share”.

“We’re driving new customers to shop with us and our existing shoppers are coming back more frequently and spending more - with the majority of brand baskets also containing an M&S product.”

Third-party sellers through marketplaces will capture 59% of global ecommerce sales by 2027, up from 56% in 2022, according to research from Edge by Ascential. To put this into context, by 2027 the top four largest global online marketplaces alone are expected to generate $4.3tn (£3.3mn) in combined sales, which would represent around two-thirds of total global ecommerce sales when including both first and third-party sales. 

The dropshipping model, while less popular, is taking off too, with the global market set to expand at a continued annual growth rate of 23% through to 2030, according to Grand View Research.

‘Store without a stockroom’

Under this approach, a retailer extends their product offerings by selling items they don't physically own. When a customer places an order, the retailer purchases the product from a supplier and has it shipped directly to the buyer. 

“Dropshipping is like running a store without a stockroom,” explains Mark Adams, senior vice president and general manager of EMEA at BigCommerce, a SaaS ecommerce platform. 

“When a customer buys something, instead of pulling it off your own shelf, you relay the order to your supplier. They handle all the packaging and shipping straight to your customer's doorstep. You're essentially the middleman who markets and sells, while someone else deals with inventory and delivery.”

Both marketplace and dropshipping have valuable advantages but also come with challenges. 

For example, a brand’s reputation might suffer when it relies on third party sellers to handle customer enquiries and shipping. That’s because blame for delays and mistakes fall on the retailer’s shoulders, not the suppliers. There are, however, solutions to this problem.

Benefits of a hybrid approach

Businesses can mitigate this by regularly vetting their suppliers’ performance. They can also use a hybrid approach and combine models to cover all bases, which is what most retailers tend to do. 

In this setup, the platform functions as a marketplace where multiple sellers can list products, but also offers dropshipping capabilities. “To ensure we are delivering the best curated shopping experience for our customers, we offer our supplier partners access to a variety of business models that support our joint objectives,” comments a John Lewis spokesperson. 

“As well as wholesale and concessions, we offer a dropship model where suppliers ship directly to customers giving us the ability to flex our range and improve speed to market.”

Again, the hybrid model comes with its own challenges. The retailer may need to rethink their backend operations and retrain staff unfamiliar with the new models. But overall the benefits outweigh the drawbacks. 

“Such a flexible approach offers several advantages: sellers can choose their preferred operational model, the platform can offer a wider product range, and it creates multiple revenue streams through both marketplace commissions and dropshipping services,” says Adams.

In the evolving landscape of ecommerce, the choice between marketplace and dropshipping models offers businesses the flexibility to expand product offerings while minimising risks. Though each approach presents challenges, the ability to diversify revenue streams and cater to consumer demand makes these models invaluable tools for growth in the digital era.

Building a successful ecommerce platform has always required careful planning and execution. But at a time when the market is under pressure, brands now more than ever need to deliver an exceptional customer experience and be prepared to pivot when market conditions change. 

Making the right choices when it comes to technology is therefore vital. Yet many retailers fail to properly understand their product or audience before they even begin developing their platforms. Setbacks can also occur due to outdated IT systems and legacy applications that stop retailers from building a truly agile solution. 

Mark Adams is senior vice president and general manager of EMEA at BigCommerce, an ecommerce platform provider that helps retailers with issues such as online store creation, search engine optimisation and hosting. He believes the first thing any retailer must do before building and altering their platform is “map out” exactly what they want to achieve. 

That means doing thorough market research in order to properly understand their product or audience, he says. “Without thorough market research and correctly pricing products, companies risk offering items people don’t want or pricing them inaccurately.”

Customer experience comes first

The technology aspect comes next, as companies decide which type of platform will work best for their specific needs in terms of functionality. That might be open source, software as a service (SaaS) or headless commerce, and a firm will need to know whether their platform will be hosted in the cloud or on-premise. 

“Choosing the wrong tech stack can cause long-term issues,” says Adams. “But by addressing these issues and focusing on customer satisfaction, businesses can create ecommerce experiences that keep shoppers coming back.”

A successful site needs to work smoothly on desktops and mobile, offering fast-loading pages, good navigation, reasonable shipping options and frictionless payment processes. With the share of global ecommerce sales made on mobile phones set to increase to  62% in 2027 - up from 56% in 2018 - the marketplace landscape is becoming ever-more mobile oriented, so this agility is crucial. It also needs to be able to handle intense spikes in traffic during events like Black Friday and seasonal sales, which place immense pressure on IT infrastructure.

Further to this, retailers are investing heavily in innovations such as AI and the cloud in order to satisfy customers and keep up with the competition. Take John Lewis’s £100m deal with Google Cloud earlier this year, or its adoption of a new ecommerce solution based on composable architecture back in 2020. 

“As a business we are undergoing significant change and transformation. We are always looking for ways to improve our existing systems and processes to better enhance ways of doing business that best meet our customers’ needs,” a John Lewis spokesperson comments. 

Having a modern and flexible IT infrastructure is central to achieving all these goals, says Chris Harris, vice president of field engineering at Couchbase, a cloud database platform that works with retailers such as Tesco, Tommy Hilfiger and Crew.

“Legacy technologies cannot keep up with the scalability, performance availability and mobile requirements that modern consumers expect. They can become slow, inaccurate and ultimately unable to meet rising customer expectations,” he says. 

Flexibility and agility

Choosing solutions with composable architecture is essential to giving retailers the flexibility they need. Unlike monolithic architectures, which are rigid and difficult to scale, composable architecture allows companies to break down their platform into independent, interchangeable components. 

The retailer can then adapt and refine the site with ease: integrating a new shipping provider based on customer feedback, implementing a new AI voice assistant or switching to a more secure payment gateway, for example. Composable architecture makes it possible to swap out outdated technologies, integrate best-in-class solutions and experiment with minimal disruption to the overall system. 

“This ‘plug-and-play’ approach extends to scaling,” says Chris Kronenthal, president at FreedomPay, an online payments platform. “Instead of scaling the entire application, you can scale individual components independently, optimising resource allocation and cost-efficiency.”

Furthermore, he says, composable architecture makes it easier to access data via APIs, enabling a holistic view of customer behaviour and market trends. This flexibility is crucial and allows for better decision-making, personalised experiences and the ability to leverage specialised data analytics tools.

Securing buy-in

This flexible approach is key to meeting customers’ ever-changing needs. But whatever tech stack you choose, being prepared beforehand is essential when it comes to a successful implementation. 

For example, any big digital transformation project can fail without support from leadership, so the C-suite should be involved from the start in developing a strategy for the new platform. This means that whoever is in charge of buying technology should consider how to effectively convey the benefits of composable architecture to the C-suite. 

To secure buy-in, the tech team researching this transformation should demonstrate exactly how investing in composable architecture directly translates to business value. As always, those claims should be backed up with data and real-world examples. With over a quarter (26%) of retailers planning to adopt composable architecture in the next 3 years, this is a conversation technology decision-makers should be prepared for. 

Fostering a culture of open communication is also key to successful execution, as it makes it easier for technology decision-makers and the board to embed their vision for transformation across the whole company. 

“As you scale, prioritise transparent communication across teams and utilise tools that foster collaboration and knowledge sharing and that communicate your vision,” says Kronenthal. “An iterative approach to technology investment minimises disruption and allows you to demonstrate value incrementally, building confidence and buy-in along the way,” he adds.

Getting platform growth right is especially important at a time when UK consumer confidence is weakening and the growth of ecommerce has slowed. But as retailers tighten their belts and make job cuts, finding extra money to invest in technology has never been harder, says Andy Mulcahy, strategy and insight director at IMRG, a trade group for the UK ecommerce industry.

As such, retailers should think carefully about whether they actually need to buy in new solutions or if they can get more out of existing ones via a package upgrade. “Progress doesn’t always need to be about buying the next shiny thing,” says Mulcahy. “Many solutions on the market have been developed over a number of years and offer functionality that many users either don’t necessarily know about, haven’t included in their package, or just haven’t spent sufficient time experimenting with.” 

Tweaking an existing solution can have a big impact, he says, although some firms even lack sufficient resources to handle this job right now. “It’s not as easy to find someone with the time to take it on and really learn how to get the most out of a solution. That’s the catch.”