Walmart beefs up its third-party marketplace as it challenges bigger online rival Amazon
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Walmart hosted its first seller summit for its third-party marketplace this summer. At the invitation-only event, CEO Doug McMillon made his pitch on why small businesses and brands should work with the retail giant. Walmart

It was summer in Las Vegas — the temperature hit nearly 110 degrees that late August day — but Christmas was on everyone's minds. While Santa Claus wandered around during an invitation-only conference, businesses that sell items on Walmart's website attended how-to sessions and swapped advice. Walmart leaders gave third-party marketplace sellers an early gift, too: Waiving extra fees for storing merchandise during the peak season. Doug McMillon, who leads the world's largest retailer, took the stage and made a sales pitch to the smaller businesses and brands. "We hope you'll choose to grow with us," the CEO told the more than 1,500 attendees, invoking the memory of company founder Sam Walton, who was at one time a small-town entrepreneur. "We want you to bring great items to our marketplace. Our team is here to serve you." As Walmart heads into the retail industry's most important season, the company is trying to recruit and retain hundreds of thousands of independent sellers that fill the company's virtual shelves with items ranging from lip gloss to Rolex watches. It is also working to coax those sellers into paying Walmart to pack and ship — and even advertise — their products. It is leaning into a moment when inflation has pushed more high-income shoppers to its stores and website. This holiday season will put Walmart's e-commerce strategy to the test. Already, the company is using the third-party marketplace to try to drum up early business. More than half the items included in Walmart's sales event last week, which kicked off the season, were from its third-party marketplace. The event coincided with Amazon's Prime Big Deals Days event, but there were no comparisons available.

About 70% of items included in Walmart Plus Week, which coincided with Amazon Prime Day in July, were marketplace items. Walmart wouldn't share comparisons with sales events in prior years, but said more sellers are participating in the events overall. There are signs Walmart's growing third-party marketplace could help the company defy slower spending patterns and capitalize on inflation-wary shoppers. Online sales for Walmart U.S. rose sharply the past two fiscal quarters, even as other major retailers such as Macy's and Target reported declines. As shoppers at many stores, including Walmart's own, skipped over discretionary purchases, Walmart's third-party marketplace saw sales in some discretionary categories such as home and apparel rise by double digits in the most recent fiscal quarter. Tom Ward, chief e-commerce officer for Walmart U.S., said the company's app and website have a fresh look, its fulfillment centers and stores have automation that's helping power more late-night and last-minute deliveries and its growing marketplace has helped create an "endless aisle" of electronics, toys and groceries to give customers a reason to return. "Customers want choice," he said. "They want that selection. They want that variety. And as they visit us more and more often, they expect to see it."

When it comes to e-commerce, Walmart is in a rare spot: the underdog. Its online sales are just a tiny fraction of what Amazon rings up — and that carries over to the companies' third-party marketplaces, too. Customers who shop on Amazon and Walmart's website see a mix of items. Some items are sold directly by the retailers and others are sold by sellers that own the inventory, list items on other retailers' websites and share a cut of the profits with those retailers. Amazon has more than one million active sellers, and Walmart has roughly 100,000, according to Marketplace Pulse, a third-party firm that collects data on e-commerce marketplaces including Amazon, eBay and Etsy . Amazon and Walmart do not disclose how many active sellers they have.

For Walmart, closing that large gap is an uphill climb, and also an opportunity, said Rick Watson, CEO of RMW Commerce Consulting, an e-commerce consulting firm with clients that cut across categories such as furniture, fashion and food and beverage categories. "Amazon has never been known as the most seller-friendly place to do business," he said. "Something I've seen recently is a lot of sellers actually cheering for Walmart because they want an alternative." Tension between Amazon and some of its sellers is at the heart of an antitrust lawsuit filed in late September by the Federal Trade Commission against Amazon. The suit accuses the e-commerce behemoth of anticompetitive practices, such as punishing sellers for offering cheaper prices on other websites and strong-arming them into using its fulfillment services. Amazon denied the allegations in a blog post, saying the company has helped, not harmed, customers, and contributed to lower prices and speedier services. Watson said sellers can struggle to get someone on the phone on Amazon. At Walmart, on the other hand, he said sellers tend to get more "red carpet treatment." But first, Walmart often has to persuade successful sellers on Amazon to take a chance on the relative newcomer, such as companies like Lucky 21.

About a year and a half ago, the apparel retailer that represents national brands such as Disney, New Balance and Reebok tested sales of some items on Walmart's marketplace. Melissa LaCognata, vice president and divisional merchandise manager for Lucky 21, said the company knew Walmart was years behind Amazon. Yet, she said it heard about Walmart's investments in marketplace and knew Walmart already had a large brick-and-mortar customer base and sizable online traffic. "It's like being in the second-best mall in the world," she said. "Why not?" Last year, Lucky 21 became the largest third-party seller of children's apparel on Walmart's website. But Walmart has had to play a major game of catch-up, such as simplifying the on-boarding process to make it easier for new marketplace sellers to join and launching membership program, Walmart+, to drive more online sales. Three years ago, it launched Walmart Fulfillment Services, which allows sellers to pay the retailer to store inventory and pack and ship orders. Amazon began offering a similar picking-and-packing service in 2006. This summer, Walmart announced another wave of features to better compete with Amazon. It has begun to offer fulfillment for sellers' big and bulky items as well as merchandise that comes in multiple boxes, such as canoes or patio sets. It also debuted tools to support sellers' businesses, such as allowing them to hire Walmart to make local deliveries of cakes or other online orders or pay Walmart for software to power curbside pickup at shops.

Walmart is looking to its more than 4,600 stores across the country as another way to outmatch Amazon. The stores act as mini warehouses, with more than 50% of online orders fulfilled from its stores as of the end of its most recent quarter, which ended in late July. About 90% of Americans live within 10 miles of a Walmart store, proximity that makes it possible for Walmart to sometimes to get a package to customers' doors faster than Amazon. So far, Walmart does not carry third-party marketplace items in its stores, which means customers can't get those online orders through curbside pickup or ultra-speedy delivery to their homes. Yet, Jaré Buckley-Cox, vice president of Walmart Fulfillment Services and an Amazon veteran, said that is coming within the next five years and described it as "a high priority." Some customers have gotten a glimpse of how that might look. One of Walmart's popular marketplace items has become tires, which shoppers can ship to select stores and get installed at Walmart's auto center.

Does inflation give Walmart an advantage?