Amazon Plays Defense Against Wal-Mart

The online retailer has taken steps to hold onto its third-party sellers.

Daniel B. Kline
Daniel B. Kline
Jun 29, 2017 at 9:28AM
Consumer Goods

Amazon (NASDAQ:AMZN) has been the biggest game in town when it came to third-party selling opportunities for a very long time.

The company faces niche competition from eBay (NASDAQ:EBAY) as well as limited rivalries in specific markets from smaller players. Mostly, though, it has been the 800-pound gorilla competing with companies that lack the scale to do it any real damage.

Because of that, the online retail giant has not had to court sellers, nor has it had to do much to keep people on board. It may not have been the only game in town, but it was certainly the best option for most retailers looking to sell on a third-party digital platform.

That may still be the case, but the company has a new rival for top sellers. Wal-Mart (NYSE:WMT) has stepped up its efforts to woo third-party sellers to its brand. With the chain's growing online business led by founder Marc Lore, the brick-and-mortar chain has moved from a weak No. 2 in the digital world to one that looks like it could be a real competitor.

Packages role down a Wal-Mart conveyor belt.

Wal-Mart has stepped up its digital game in recent months. Image source: Wal-Mart.

What's happening with's marketplace?

Basically, Wal-Mart has capitalized on the fact that not every Amazon third-party seller is happy. In some cases, merchants have been upset at the online giant's willingness to kick them off the platform for seemingly minor offenses. On top of that, some third-party sellers see Wal-Mart's growing audience as an opportunity to not have all their eggs in one basket.

It's also worth noting that Wal-Mart, while it has been growing its digital business, has not become as crowded as Amazon's third-party marketplace. Bloomberg writer Spencer Soper explained what's happening in a recent article.

For merchants, Wal-Mart today is what Amazon was a decade ago: a vast frontier with room to grow. Amazon, by contrast, is so crowded with products and sellers it has become difficult to stand out, forcing merchants to sacrifice some of their profits on advertising.

That's potentially very bad news for Amazon, since third-party merchants account for about half the sales on its platform, according to Bloomberg. Having to share some of those sellers with Wal-Mart, or even losing some to its rival, could cause a dip in overall sales.

What is Amazon doing?

The online giant has realized that it needs to treat its third-party sellers better and it held an event for 1,500 merchants on June 28 in New York. That's the first time Amazon has ever held a conference for its partners in its more than 20 years of being in business. At the event, third-party sellers got to attend seminars and speak with some company executives.

This was an attempt by the online retailer to cement its relationship with the partners that have helped grow its merchandise selection from impressive to astounding. In many ways, it's like when someone realizes they have ignored their significant other and then takes him or her to a fancy dinner. The gesture is nice, but it's only meaningful if it's followed up by a long-term change in behavior.

Will it work?

Second-tier players like eBay have more to be worried about from Wal-Mart than Amazon. In reality, barring a large defection of its top sellers, which is very unlikely, the online leader won't be severely impacted by sharing some vendors with Wal-Mart.

A third-party marketplace seller making a lot of money on Amazon won't leave the platform even if some perceived slight has occurred. Some companies will defect, but that may even benefit the digital retailer as it loses some of the fringe providers cluttering up its listings.

There's room for Wal-Mart to build its marketplace and become a much stronger player in the online space. Amazon is smart to work to make sure it listens to its partners and keeps them happy.

This is just one battlefield in what has become an increasingly intense war between the two brands. Amazon's reaching out to some third-party sellers, albeit a small percentage of the total group, shows the company understands it's no longer the only big player in the digital space.

That's an important realization that shows Wal-Mart won't be able to grow at the online leader's expense simply because Amazon has become complacent. Going forward that likely means many more fronts where the two companies battle over customers, third-party sellers, and the increasing markets they intend to compete in.