In the fast-moving world of e-commerce, retail sales have continued to exceed all expectations. In the last year alone, third-party sellers and businesses on Amazon.com Inc. have contributed to the marketplace's annual revenue increase of 38%, and few of these multinational selling machines show signs of slowing down.
After this record-breaking year, U.S. e-commerce is expected to grow further, with one forecast suggesting the market will expand by $1 trillion by 2025. In what’s been described as a modern-day gold rush, investors are pouring billions into successful global marketplace sellers and businesses, by providing back-end resources to expand internationally. Known as “rolling up,” this aggregation of smaller and successful retail brands into one powerhouse portfolio is generating million-dollar companies.
With many players yet to peak, the e-commerce world is paying close attention to this growing industry trend, which promises to disrupt established retail brands.
As these traditional retailers faced pandemic-induced logistics headaches, marketplaces like Amazon, EBay Inc. and Etsy Inc. have seized the opportunity to grow global online businesses. Coupled with brick-and-mortar store closures, marketplace sites accounted for 62% of global web sales, cutting deeply into traditional retailers’ profits.
Unsurprisingly, Amazon, the world's most popular and competitive online marketplace, saw an uptick in sales alongside its growing base of third-party sellers. In the first quarter of 2021, 55% of paid units were sold by these independents, creating the second-largest revenue segment on the online retail platform. Now, more than 2 million people worldwide are using the versatility of the Fulfillment by Amazon (FBA) program, and roll-up companies are acquiring more sellers in greater numbers.
Naturally, these trends have caught the eye of aggregators targeting businesses to scale in marketplaces. Roll-up businesses are pouring almost $1 billion into small business operations, utilizing strengthened marketplace rankings and positive reviews, as private equity firms enter the race.
According to Bloomberg, aggregators such as Perch and Thrasio have announced over $2.5 billion in fundraising rounds, with more than 40 such firms emerging as a result. Now, these lucrative portfolios boast hundreds of brands, suggesting that marketplace businesses are becoming more sustainable and profitable investments.
With roll-up acquisitions here to stay, the beauty of this setup perhaps lies with the capability to streamline back-end logistics and simplify the complicated sales network. While there’s a myriad of tools available to help advertise, market or improve search engine optimization visibility, merchants can become discouraged and even distracted from the overall selling process if not managed sufficiently. When these functions are combined with cross-border selling — involving foreign exchange taxes and hidden costs — the selling process can become daunting, stunting growth.
To achieve their growth ambitions, sellers need access to competitively priced goods from low-cost manufacturing destinations like China. Payment providers, in particular, have been helping sellers to vet suppliers while providing access to foreign currency in real time so that merchants can continue to grow.
In this ever-evolving world of e-commerce, companies that fail to use a trusted partner can find themselves walking a tightrope of business models, supplier networks and consumer demands. While it’s possible to manage all of these effectively, it will naturally be more complicated, with merchants running the risk of hindering their sales and missing out on lucrative opportunities in global markets. In the last year alone, consumer demand for online goods revealed the potential for anyone to experience e-commerce growth; still, for every newly made millionaire there are several that couldn't make the cut.
Despite the U.S. being a big market, and whether you choose to meet this demand alone or join an aggregated portfolio, it’s vital to remember that much of the purchasing power lies abroad. Having the right synergies to facilitate this will be key to growth, and managing the operational complexities that typically hinder marketplace businesses. Crucially, as international e-commerce continues to rise, it will become essential to adopt a payment provider that can move money across all four corners of the world in preparation for global domination. Without it, marketplace businesses could risk falling behind in a race they won’t want to lose.
Kenny Tsang is managing director of fintech provider PingPong Payments.