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Walmart’s Marketplace Could Soon Have One Big Advantage Over Amazon

Walmart is escalating its ongoing war with Amazon by cozying up to both online shoppers and small to midsize vendors.

The retail giant recently alerted sellers on its platform that it’s attempting to make all returns a “consistent and easy experience” for consumers shopping its site—even its marketplace. The retail behemoth is making return policies clearer and allowing customers to print shipping labels directly from its site, according to an email obtained by CNBC. Further, to alleviate the costs associated with these returns, Walmart is giving sellers access to the company’s Returns Shipping Service, through which they can receive discounted rates.

Pete Killian, partner at brand strategy firm Vivaldi Group, said the move is clearly meant to position the big box chain to scoop up more small to medium-size sellers, a group Amazon has been abandoning in favor of bigger opportunities.

“This new policy also helps the Walmart brand by putting it at the center of a positive experience, a smooth return process,” he said.

What Walmart clearly understands is that removing friction from the returns process is one way retailers can boost sales. A recent UPS report that found that 68 percent of shoppers take a look at a retailer’s return policy before clicking purchase.

Flexing physical store might

But the retailer isn’t stopping there.

The company is quoted as saying, “And, this is just the first step. We have a big opportunity to use our 4,700 stores across the country to make marketplace returns even easier.”

That will come as welcome news to the 58 percent of online shoppers who indicated in the UPS survey that they prefer to return items to a store. And it could end up being a major differentiator for the big box chain.

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“To the extent that Walmart makes it easier to bridge the difference between them and people who sell on their portal, it will help them drive business to their site over time,” said Jerry Davis, director of the Return Logistics Sustainability Council. “If Amazon doesn’t come along, then Walmart will have a clear competitive advantage.”

Though Amazon has more than 400 physical locations across the country thanks to its Whole Foods acquisition, Davis said even if the company opted to allow third-party sellers’ goods to be returned there, it wouldn’t amount to much. “There aren’t enough Whole Foods stores to make that viable,” he said. “There are a lot of Walmart stores.”

In fact, there are more than 4,700 Walmart stores in the U.S., or more than 10 times the number of Whole Foods locations. Though Amazon also allows shoppers to drop off returns at select Kohl’s, even if that relationship expands and gets rolled out to all stores, it would only add another 1,000 locations.

Courting the little guys

Killian said Walmart’s focus on third-party returns shows the retailer is looking to expand its online offering by stepping into what had been Amazon’s territory.

Until now, he said, Amazon had been the home of fledgling and smaller sellers. Today, the company is no longer catering to that group. Instead, Killian said Amazon is modeling the Pareto principle by reaching deeper into the pockets of a smaller field of players.

“E-commerce is maturing beyond small, long-tail, mom & pop marketplace sellers and brands—and big brands ‘want in’ on the exponential growth potential. To tap into that growth potential, they need Amazon’s platform—few brands are big enough to go direct,” he said.

While Amazon offers scale, what it’s really after, Killian said, is the big money it can make through its advertising platform. And as Amazon focuses on the larger players, it leaves the door open for Walmart.

“Walmart realizes that in an age of exponential growth, small frictions have big negative impacts down the road. So they’re removing as many frictions as possible to court small sellers and improve buyers’ experience, to smooth the way to their exponential platform growth,” he said, adding that it’s an about face for the retailer that had been focused on “mighty” brands.

Weighing the options

While other brick-and-mortar chains might be mulling the benefits of enlisting their stores in an omnichannel returns scenario like the one Walmart is apparently undertaking, Davis said it’s harder than it sounds.

“Returns are very difficult to do because unlike forward distribution centers where you know what’s coming and you know it’s going to be new and in a carton and how many in a palette and you know the day it’s going to arrive, in centralized returns processing, you have no idea what’s coming and no idea what condition it’s going to be in,” he said.

What’s more, Walmart, which likely has more than 15,000 vendors in its stores, is now talking about trying to handle returns from upward of 75,000 vendors, and the current return centers are not built to handle that volume, Davis added.

Adding to the challenge is the sheer magnitude of returns that result from e-commerce transactions.

“The average return rate in brick-and-mortar stores is 9 percent and online it’s double, at almost 20 percent,” he said.