New research has revealed that 57% of retailers and brands in the UK plan to increase third-party selling in the next 12 months to help weather the turbulent economic climate. Against a backdrop of rising operational costs and a highly competitive ecommerce market, the global survey highlighted that lower margins are the primary driver behind why more businesses are expanding into 3P commerce.
Commissioned by Rithum, The State of 3P Commerce report was conducted by Wakefield Research and surveyed 550 retailer and brand executives in the US, UK and Germany to identify growth opportunities through the 3P e-commerce model.
3P commerce is different for retailers compared with brands. For retailers, 3P commerce helps them access unowned inventory. This is a business model where brands sell products directly to consumers through a retailer’s storefront, typically through a dropship or marketplace approach. This model shifts inventory risk away from retailers, who instead act as facilitators between brands and consumers. For brands, 3P commerce helps them extend their owned inventory to unowned channels. This allows brands to reach more consumers through a multichannel selling strategy.
In addition to reacting to increasing pressure on margins, brands are also using a third-party model to expand their customer base and reach customers where they already shop. This expansion has been successful, with two thirds (69%) of UK brands and retailers increasing the percentage of sales coming from 3P in the last year.
Third-party commerce is becoming more prevalent in the UK with a third (30%) of brands now attributing more than half of their sales revenue to 3P platforms. Almost all of the respondents (99%) say 3P sales are important to the company’s profitable growth.
Pros & Cons of 3P Commerce
Depending on your needs, there are benefits to both 3P and 1P commerce models.
Inventory ownership
- 3P commerce: Brands retain ownership of the inventory; retailer facilitates the sale.
- 1P commerce: Retailers purchase and own the inventory.
Risk and investment
- 3P commerce: Reduced financial risks for retailers because they do not hold the inventory.
- 1P commerce: Higher inventory risks and capital investment for retailers.
Scalability
- 3P commerce: Offers immense scalability, allowing brands to reach wider audiences without the limitations of physical inventory management.
- 1P commerce: Scalability can be challenging due to inventory and warehousing constraints.
Flexibility
- 3P commerce: More flexibility allows sellers to adapt quickly to market changes and consumer demands.
- 1P commerce: Less flexible because the retailer is often in possession of inventory.
Brands are embracing the flexibility that third party commerce provides to thrive during turbulent times. With online shopping more fragmented than ever and margins becoming tighter, having a presence across multiple marketplaces is becoming a virtual necessity for most brands.
A brand can’t dictate to their consumers where they shop so managing the increasing number of marketplaces is a growing challenge. Some are turning to AI to solve the issue, with tools like Rithum’s Magic Mapper making the manual process much more efficient. “Retailers and brands are feeling the pressures of the complex e-commerce market from all sides. What may feel like a crisis is actually a turning point filled with opportunity. As the industry evolves, it’s great to see how businesses are not just surviving but thriving when they adopt the 3P commerce model.
– Philip Hall, managing director EMEA, Rithum
