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Shopify vs. Amazon: What's the best way forward for DTC e-commerce?

There's no question that retailers big and small need to be reaching their customers online. Less clear is the best approach for doing so.

Marketplaces like Amazon offer an easy way for sellers to list their wares and reach a large base of existing customers -- and the stronghold of such marketplaces appears to be growing. Walmart announced in July that it would make it easier for small retailers to add products to its marketplace. Target has offered a curated selection of third-party products since the launch of its Target+ platform in 2019.

Alternatively, merchant service providers such as Shopify make it easy for retailers to launch their own online stores. Shopify strengthened its offering in August by announcing plans to create an 8,000-square-foot co-working space in New York City where retailers can meet with advisors, rent audio and video equipment, shoot professional photos of their products and sip coffee with other sellers.

Choosing between the two options can be challenging for retailers looking to up their game in e-commerce and direct-to-consumer sales. Here are some key questions to consider in making the choice:

What does your customer base look like?

As of March, 147 million Americans had an Amazon Prime account, according to research from Consumer Intelligence Research Partners. Selling through Amazon offers instant access to that large base of customers, which can be valuable for a seller that doesn't already have a loyal base.

On the flip side, selling through a marketplace means that a retailer or brand does not have ownership over the channel. The marketplace decides who gets to sell and how sellers rank relative to others. If a retailer were to ever leave the marketplace, they would also forgo access to the customer base that came with it.

"If 25% of your sales are coming from Amazon and nowhere else, you're going to have a terrible time moving elsewhere," Louis Mosca, who helps business owners build their brands, wrote on Forbes.

How competitive is your space?

A major disadvantage of selling in a marketplace is competition. Customers can easily compare prices, delivery speeds and other factors that make one option more attractive than the other. Competitors may outrank you, and the marketplace provider itself may be a competitor, as Amazon is with its own branded products.

Nike, for instance, decided to pull its products off of Amazon in 2019 because third-party sellers were diluting its brand presence, Bloomberg reported.

"The company now wants to focus on creating more 'direct, personal relationships' with consumers, mimicking many of the new direct-to-consumer startups that have popped up over the last decade," Elizabeth Segran wrote on the topic for Fast Company. "This means selling more through its own distribution channels."

How important is customer connection for your brand?

For retailers that want to cultivate strong customer loyalty and engagement, selling on a marketplace may have its limitations.

Grace Druecke, owner of The Bali Market in Arizona, sells Turkish towels and other products. She began her online presence on Amazon before shifting to her own online store.

"I realized I wasn’t exactly building the business I had envisioned," Druecke wrote on HeyMama. "I didn’t have a brand of my own -- not really. Amazon offered millions of eyeballs and wallets, but I was lacking the authentic connection that I really craved."

On the other hand, merchants whose primary focus is sales volume may not need to worry about cultivating an especially strong relationship with individual customers.

Can you manage both?

Retailers that want the benefits of a proprietary online store as well as access to online marketplaces consumers frequent can sell their products both ways.

"Shopify is a great complement to Amazon," Laura Douglas of e-commerce consulting firm FountainheadME told NerdWallet, noting that Shopify even offers ways to connect inventory between the two. "Plus, Shopify provides a valid web presence, which boosts the trust of Amazon shoppers who are searching for your site."

The key is ensuring that retailers have time to manage both: Maintaining high rankings on a marketplace can take time and effort, as can ensuring that a Shopify site feels fresh and enticing to returning customers.

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