Memo: The Rise of B2B eCommerce

Over the pandemic, businesses that sell supplies, tools, and parts to other businesses followed the consumer-facing market into eCommerce. The narrative for the consumer-facing retail (B2C) has been one of growth and contraction: “online retail is dead.” Amazon has struggled to regain its Bezonian footing and the arbiters of advertising saw their stock price plummet on news of lower-than-expected earnings. But what I’ve found is that growth is not

It seems that some pandemic-related shifts were permanent after all. This is one of them.

Consumers don’t normally think business-to-business retail market (B2B) as high growth or glamorous but that may change once pundits see the numbers. There’s a lot of growth ahead; it’s a trillion dollar industry that still feels “small.” The eCommerce slice is around 10% of the overall B2B market with sales due to grow 11.2% over the next year, totaling a mark above $1.6 trillion out of a total market of $16.3 trillion. According to Insider Intelligence:

Although macroeconomic conditions remain challenging, we expect B2B eCommerce sales to outperform the overall B2B market. That said, B2B eCommerce still plays a limited role in B2B transactions, and the room for growth is enormous.

Insider also noted that “the GDP of the entire US economy was $24.882 trillion as of Q2 2022, per the Bureau of Economic Analysis (BEA).” An eighth of the U.S. economy is B2B sales and online retail’s slice of that industry is 10% and growing. This seems like an industry that is long-overdue for the spotlight.

A recent report from Digital Commerce 360 breaks down the rise of the B2B marketplace, which it says is the fastest-growing B2B eCommerce channel over the past three years. The category has seen sales increase 5.3x between 2020 to 2022. Digital Commerce 360, whose tracking of 400 B2B marketplaces was less than 100 retailers tracked just three years ago, says this class of marketplace is expected to reach $130 billion in sales this year. That’s a growth that’s 7.2x faster than the B2B eCommerce segment of the market. And while still a small fraction of the overall $1.89 trillion B2B eCommerce sales market, that’s an increase to 6.9% of all sales in 2022 (up from 1.8% of sales in 2020).

Sales have risen. But as mentioned, competition has also increased. Digital Commerce 360 is now tracking 400 commercial and vertical marketplaces across 18 industries. The biggest in terms of funding in the last year, which tells us the industries most is transportation and logistics ($7.05 billion in funding), followed by manufacturing and industrials ($2.35 billion), labor ($2.31 billion), retail ($1.4 billion) and agriculture ($1.24 billion).

The pandemic was the catalyst behind the mass migration from physical-only to omnichannel retail sales. Buyers pivoted their businesses to source online at the height of Covid-19, which limited in-person transactions. There, they found marketplaces had more selection, making this a meaningful, long-term shift. From the report:

B2B buyers, like consumers, turned to websites to make purchases when the COVID-19 pandemic struck in early 2020, making face-to-face transactions impossible in many cases. When Digital Commerce 360 asked business buyers in March 2022 how the pandemic changed their buying behavior, the top response, selected by 52%, was that they went to “ecommerce sites as they have more selection.”

According to the report, 57% of buyers say they are purchasing more from marketplaces during the pandemic, while 35% say they do at least half of their shopping on marketplaces.

Marketplaces offer more choice to consumers and buyers in one place and an efficient means to shop for multiple categories of supplies with one single checkout workflow. This isn’t not novel but to an industry that was somewhat behind the technical curve prior to 2020, this is an innovation. B2B’s greatest innovation is that its target customers tend to have money and few need digital advertising funnels to help them close the sale.

It’s likely that we will begin to see more consumer brands using B2B marketplaces as a new sales channel. Don’t be surprised if, in just a few years, B2B is viewed as a strategic necessity for brands who have exhausted other channels to acquire customers. B2B has found itself at the center of a strategic shift for brands and sellers at the same time that customers and buyers are becoming more price sensitive and efficiency-conscious.

Of course, we cannot mention eCommerce without raising the issue of Amazon’s dominance. Does Amazon have total market domination in this sector, too? By the numbers, yes. Amazon Business is the biggest B2B marketplace, with $31.4 billion in GMV compared to $4.4 billion across the next top 10 marketplaces combined.

In 2022, Bank of America Securities projects Amazon Business will post $41.5 billion in gross merchandise volume. That would be up 31.7% from a projected $31.5 billion in 2022. Based on these projections, Amazon Business singlehandedly would account for 31.9% of all B2B marketplaces sales.

Retailers are not ceding ground to Amazon without a fight. In 2022, e-commerce and digital marketing were forecast to account for most business-to-business (B2B) investments by marketers in the United States. According to a survey, more than eight out of ten professionals in companies that sell their services and products to other firms would invest in the mentioned areas. According to the survey, approximately 44 percent of B2B marketers planned to invest in e-commerce platforms and site features, along with technology infrastructure.

In addition to investments in e-commerce architecture, these investments have been joined by investments in: robust site features, digital marketing strategies, customer service streamlining, supply chain efficiencies, and more efficiency in logistics. Another key area for B2B operators is the investment in offering ease in payments processing to B2B partners.

In 2020, Hal Lawton was successfully poached from Macy’s to lead Tractor Supply as its CEO and board member. Prior to that stop, Lawton left his mark at Ebay, Home Deport, and McKinsey & Company. In a recent report by StoreBrands, Lawton’s team earned another successful quarter by implementing one of the key practices found at retail marketplaces that succeed in the consumer space. Tractor Supply’s net sales increased 8.4% YoY to $3.27 billion in Q3 after the chain’s private label accounted for a reported for a substantial percentage of the retailer’s growth.

All of this is to say, as consumer brand executives struggle to acquire customers in the world of DTC and B2B retailers struggle to properly future-proof their businesses, we’re likely to see a melding of the minds. Lawton’s move from consumer-facing to B2B may serve as the model for future hires. With Amazon breathing down the necks of B2B marketplaces, their next executive hires may become their most important. But convincing consumer brand leaders to leave for greener pastures (or red tractors) will not be as difficult as it was just two years prior.

The future of eCommerce growth will belong to the B2B marketplace retailers that modernize smartly, employ best practices, and hire well.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams 

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