Official Retailers Dragged Into Battle

In April 2019, fans of the makeup influencer Jaclyn Hill noticed her new eyeshadow palette, normally $38, on Walmart.com for the unbelievably low price of $16.39. Many rushed to buy; others were skeptical: Hill had announced that the palette would be available only through certain retailers, and Walmart wasn’t one of them.

Soon, Hill confirmed their suspicions. “It is not my palette,” she said on Twitter. “They are FAKE!”

The counterfeit palette had infiltrated Walmart’s website, but it wasn’t being shipped from Walmart warehouses. Instead, it was “sold and shipped by Mallroom Global Inventory LLC,” one of tens of thousands of “third-party sellers,” independent businesses that list their wares on Walmart’s app and website.

Walmart is famously hands-on with the merchandise in its physical stores, working with manufacturers on design, packaging, and pricing. Its website and app are different. There, more than 35,000 third-party sellers are listed alongside the carefully vetted Walmart products. Third-party sellers were responsible for 92.5 percent of Walmart’s online inventory at the end of 2019, according to Marketplace Pulse, which tracks marketplace data.

You can see this in action on Walmart.com. Search for “toothpaste,” and you’ll get more than 500 options “sold and shipped by Walmart” plus more than 500 from places like #1 DEAL, 55Dental, and a seller called “**SAME DAY SHIPPING**”—all third party sellers, like Mallroom Global Inventory LLC. If you make a purchase from one of these third-party sellers, your deal is with them. If the product never arrives, arrives broken, or turns out to be counterfeit, you can’t get a refund from Walmart. You’ll have to talk to Mallroom Global Inventory LLC.

Walmart.com’s capacity as a meeting ground for buyers and outside sellers to do transactions among themselves is called the marketplace model. Walmart did not return The Markup’s request for comment.

Amazon Is a Mall

Amazon’s marketplace, launched in 2000, enabled the site to grow to more than half a billion product listings in the U.S. As of April 2018, the Amazon marketplace made up 58 percent of Amazon’s sales. “Third-party sellers are kicking our first party butt,” Jeff Bezos wrote in a 2018 letter to shareholders.

Many of the biggest brand-name retailers have added marketplaces to their websites, including Target, Sears, Office Depot, Crate & Barrel, Urban Outfitters, J.Crew, Macy’s, and Barnes & Noble.

Each company sets its own policy around what to allow on the marketplace and how thoroughly to vet sellers. Amazon has a low barrier to entry: Outside of certain categories, sellers can register as quickly and easily as customers and start selling right away. Choosier marketplaces can look at an applicant’s account on Amazon and other marketplaces as a reference check. 

A screenshot of an item to purchase on Amazon that isn't sold by Amazon

“The first thing you must have to get accepted into Walmart, is you need to be selling on Amazon,” Beau Crabill, an e-commerce consultant, says in a video about how to start selling on Walmart’s marketplace.

Amazon also offers shipping, storage, and customer service on behalf of third-party sellers through its “Fulfilled by Amazon” program,” which makes it even easier for new sellers to get started. But even when the product is fulfilled by Amazon, it’s still the seller who is responsible for the accuracy of the listing and quality of the product. Walmart is also testing a fulfillment service, according to Bloomberg.

How can you tell if a product is coming from a reputable company you’ve heard of, or an unknown seller that you might want to know more about? The platforms don’t make it obvious, but look for language like “sold by,” “sold and shipped by,” or simply “by” and the company name. Who you’re really buying from should be disclosed by the end of the checkout process.

An Unsustainable Craze?

Marketplaces became popular because they quickly increase inventory, said David Spitz, CEO of ChannelAdvisor, a company that helps sellers manage their listings across marketplaces, but he thinks the marketplace craze is unsustainable.

“The challenge is, if you take that to its logical extreme, then every retailer opens a marketplace that’s wide open and every seller sells on every retailer and there’s zero differentiation,” Spitz said. “Everybody sells everything.”

He thinks it’s likely that a small number of general marketplaces like Amazon and Walmart will win out, and other marketplaces will focus on specific categories, the way Etsy has branded itself around homemade crafts.

Risky Business

The problem is that customers don’t always understand that they are not doing business with the big brand name whose website they are visiting.

“Broadly speaking, consumers don’t understand the difference,” said Andrew Lipsman, retail analyst for eMarketer. “You have a different level of trust when you’re engaging with the retailer you know directly versus just engaging with a conduit to some unknown merchants that may not have standards in place.”

Best Buy launched a marketplace in 2011 but shut it down five years later in part because customers were confused when they could not return third-party goods to stores, the company said. (The marketplace is still operating in Canada, however.)

There are other risks in addition to consumer confusion. Counterfeits, faulty products, dangerous toys, and expired food have popped up on marketplaces, harming customers and undermining trust that companies built during the years when they vetted their merchandise more closely.

Third-party marketplaces allow companies to earn income on sales but avoid responsibility for the products they list, Lipsman said.

“You can draw parallels to what we’re seeing with news and disinformation on Facebook,” he said.

“What happens is that these new platforms are built where they’re able to privatize the gains but socialize the cost. So they can claim, ‘Hands off, I’m not the seller who delivered this faulty product to you.’”

A screenshot showing an item for sale on Walmart.com but sold by a third-party vendor

How much responsibility marketplace owners like Walmart and Amazon should have for sales made on their sites is being debated in courts and legislatures around the country. In 2018, Amazon began collecting sales taxes on goods sold by third parties by default in response to state laws. In January 2020, a Louisiana court ruled in the opposite direction, deciding that Walmart isn’t responsible for collecting sales taxes on goods sold by third parties. Courts in Pennsylvania, New Jersey, and Wisconsin have ruled that Amazon may be held liable for faulty products sold by third parties.

In Pennsylvania, brick-and-mortar stores are potentially liable for harm caused by products sold in their stores, said David Wilk, an attorney representing a woman who is suing Amazon after being injured by a dog collar she bought on the site. Judges from the Court of Appeals for the 3rd Circuit in Philadelphia found Amazon could be held liable, but that decision was vacated and the case was reheard in February, with no ruling yet.

The law needs to catch up to the way business is done online, Wilk said. “Literally, we were citing cases from the ’80s,” he said.

Credits

Originally published as "Who Am I Buying from When I Shop Online?" with the Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) license.