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A $329 Hatchimal and the challenge of online marketplaces

A screen grab of Walmart’s website, which shows Hatchimals for sale via third-party sellers.
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In recent weeks, legions of consumers have started their holiday shopping sprees. And some of them were not happy about the price tags they saw on Walmart’s website for sought-after gifts.

“Are you kidding me, @Walmart?,” one Twitter user asked, posting what appeared to be a screengrab of Walmart’s website. The image showed a hot-selling toy called Hatchimals priced at $329.97, far higher than the $48.88 Walmart had advertised.

Another user posted an image of a listing for the Nintendo NES Classic Edition, an old-school-style gaming console that has been flying off store shelves. Its price was $496.99, even though it was selling elsewhere for around $59.99.

Really @Walmart?” I’ve got two words for ya in regards to this price…. #donewithyall,” the user wrote.

But here’s the catch: The prices that these shoppers were fuming about are not Walmart’s own prices. They are the prices of third-party sellers who participate in Walmart’s online marketplace — prices which Walmart does not set.

Walmart is hardly the only retailer to take criticism for eye-popping prices on popular gifts. Some social media users turned their fire on, for example, asking why the e-commerce giant would continue to give a platform to sellers that charge prices for hot items that are many times higher than the manufacturer’s suggested one.  

But the blowback is an example of a tricky dynamic that retailers like Walmart will have to navigate as they lean more heavily on their online marketplaces.

In the run-up to the holiday shopping season, the big-box behemoth touted how aggressively it had expanded its online selection, going from 8 million items in January to some 20 million items today. Much of that growth is thanks to third-party sellers. And Walmart is hopeful that this strategy will allow it to compete more forcefully with Amazon, which also relies heavily on a network of third-party sellers. (Jeffrey P. Bezos, the chief executive of Amazon, owns The Washington Post.)

The theory is that shoppers now have more choices on Walmart’s website, and that means they have fewer reasons to leave the retailer’s digital universe.

And yet the frustration over Hatchimals and Nintendo NES prices shows that this strategy comes with some downside. At the heart of Walmart’s retailing identity is its promise of rock-bottom prices. This is what shoppers have come to expect from the chain, and for many of them, it’s a core reason for their loyalty.

So when they see prices that don’t match up with Walmart’s “everyday low prices” mantra, it can be confusing, or even off-putting. And while many shoppers expect that they’ll encounter third-party sellers with varying prices when shopping on a site such as eBay, it appears at least some of them don’t quite understand that this might happen with a legacy retailer such as Walmart.

@Walmart Is this for real? I hope not,” another user wrote about Nintendo NES prices. “If so I’m going to have to seriously rethink shopping at Walmart, and believe me, I shop there a lot.”

Carol Spieckerman, a retail industry consultant, said this kind of customer reaction underscores one of the central challenges of populating one’s site with goods from third-party sellers.

“It’s kind of like a licensing arrangement. You only have a certain amount of control,” Spieckerman said.

Adrien Nussenbaum, chief executive of online marketplace software company Mirakl, said that a way to address some of the pricing challenges that can surface in this model is simply to keep growing the ecosystem bigger.  

The more sellers the better,” Nussenbaum said. This is the only way to create the long tail where sellers compete to drive the best price.”

Walmart’s experience courting shoppers with a marketplace model may offer lessons to other traditional retailers trying to make a go of this. Crate & Barrel announced in November that it is adding a marketplace, promising that it would only feature a “highly curated” array of sellers that would expand its selection of products. Sears, too, has a marketplace.

And while these retailers’ brands are not as closely entwined with price as Walmart’s, these stores also have taken on some reputational risk. If shoppers buy a marketplace item that breaks after a few uses, that may erode their trust in a store like Sears. If a customer orders a piece from the Crate & Barrel marketplace that doesn’t look quite so stylish in-person, that might make him question the taste level of the home goods store.

Amazon has already learned this the hard way, with some shoppers becoming frustrated after they ended up purchasing counterfeit goods on the site. In November, Amazon filed two lawsuits as part of an effort to purge such items from its digital shelves.

The complaint said, “When customers purchase counterfeit goods, it undermines the trust that customers, sellers, and manufacturers place in Amazon, thereby tarnishing Amazon’s brand and causing irreparable reputational harm.”

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