Navigating the Multichannel Landscape: Challenges and Opportunities in 3P Commerce

Key takeaways for ecommerce brands:

1. Third-party sellers now account for the majority (61%) of sales on Amazon's marketplace, underscoring the growing significance of 3P commerce as a critical sales channel for DTC brands.

2. Brands are embracing a multichannel approach, combining DTC online stores with selling on various marketplaces like Amazon, Walmart, and Etsy. This strategy allows them to reach a wider consumer base and expand their cross-border opportunities.

3. Managing the complexity of 3P commerce operations presents significant challenges for brands, particularly in areas such as comparing ROI across platforms, inventory management, and the inability to sync data across multiple sales channels. 

24 years ago, Amazon did something unheard of in business: it invited competitors to sell on its domain. The decision to allow third-party sellers to operate on Amazon's marketplace was met with suspicion at the time, but it didn't take long before independent brands' sales were growing faster than those of the host.

In 2014, third-party sellers were responsible for 44% of Amazon's total sales. By the end of 2020, they hit the 55% mark. Today, independent brands account for 61% of sales on Amazon's marketplace, underscoring the value of 3P commerce as it continues to evolve to keep up with consumer expectations.

The evolution of selling through marketplaces stands at the heart of a new report by Rithum, a platform that helps brands deliver third-party experiences. Entitled “The State of 3P Commerce,” the report draws on a survey of 550 brands in the US, UK, and Germany, revealing the benefits and challenges of this sales model. 

Key findings include:

• In the last 12 months, 68% of brands saw their revenue from 3P commerce increase.

• 70% of brands report that up to half of their revenue comes from 3P commerce, with 29% saying third-party selling generates more than 50% of their total revenue.

• Three out of five brands plan to increase the use of 3P commerce over the next 12 months.

Embracing Flexibility: The Advantages of 3P Commerce

Most brands today opt for a multichannel strategy, combining a DTC online store built on an ecommerce platform like Shopify or Magento with selling on marketplaces such as Amazon, Walmart, and Etsy. This makes sense, of course. But while the DTC channel offers valuable benefits – e.g., complete brand and creative control, ownership of customer data, and no seller fees – the 3P model is currently regarded as more essential for business profitability.  

According to The State of 3P Commerce report, there are several reasons for this trend:

• 40% of brands use a 3P commerce business model to reach a larger consumer base. 

• 39% want to reach consumers on channels where they currently shop.

• 36% are looking to add or expand their cross-border opportunities.

• 36% want access to broader digital marketing (retail media advertising) opportunities.

• 34% want to adapt to overall lowering margins across the ecommerce landscape.

All those things are interconnected. 99% of the brands surveyed by Rithum agree that 3P commerce is the best business model for weathering economic volatility, as it allows them to sell beyond their online store. A good example of this is social commerce: 82% of brands take advantage of the integrations 3P marketplaces offer with platforms such as TikTok and Instagram to sell products on social media. 

“Brands are embracing the flexibility that third party commerce provides to thrive during turbulent times,” said Philip Hall, Managing Director of Rithum Europe. “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.”

Balancing Profitability and Complexity: The Critical Role of Ecommerce Accounting

This necessity is evident in the numbers. The State of 3P Commerce report reveals that:

• 45% of brands sell on 1-3 marketplaces
• 49% sell on 4-6 marketplaces
• 6% sell on 7 or more marketplaces

On average, brands currently use four marketplaces to manage their 3P commerce operations, with 71% of respondents saying they plan to expand the number of marketplaces they sell on. 

While selling on multiple marketplaces is a great way to maximize business profitability, it has its challenges. Per Rithum's survey, three of the top five challenges are related to ecommerce accounting and bookkeeping: 

• Comparing ROI across platforms (No. 1 with 50% upvotes)
• Inventory management (No. 4 with 44% upvotes)
• Inability to sync across platforms (No. 5 with 42% upvotes)

The inability to sync data and difficulties in comparing ROI across platforms are two sides of the same coin. When sales data is not completely reconciled with the sources of truth – Amazon, Walmart, eBay, etc. – it will appear as a total amount on the brand's profit and loss (P&L) statement instead of being separated by sales channels. That, in turn, prevents the brand from understanding each channel's profitability.

Inventory management challenges stem from the same source: manual processes or obsolete ecommerce accounting and bookkeeping software. As a result, multichannel brands often lack real-time data on stock levels, exact costs (per SKU, per warehouse, etc.), and turnover rates, leading to costly errors such as:

• Overstocking, which could translate into increased storage costs and obsolete products
  
• Understocking, resulting in missed sales opportunities and unsatisfied customers
  
• Misallocation of resources, i.e., investing in underperforming products or overlooking successful ones.

Ecommerce-Dedicated Accounting Software: The Path to Financial Visibility 

As brands continue to adapt to an increasingly complex and competitive ecommerce landscape, the rise of 3P commerce has proven critical. However, while the multichannel approach is beneficial, it also comes with significant challenges, as traditional accounting and bookkeeping software is not optimized for dealing with multiple sales channels. 

To overcome these challenges, brands must adopt an ecommerce-dedicated accounting service. One that provides full inventory visibility across multiple marketplaces, ensures sales data is completely reconciled with the sources of truth, and syncs it all together (separated by sales channels) in your P&L. 

In other words, in the fast-evolving world of 3P commerce, survival isn't just about selling everywhere – it's about understanding your numbers everywhere.