‘It’s a double-edged sword’: How third-party sellers navigate Amazon’s marketplace amid changes
Being selected as an “Amazon Choice” is the ultimate high, but it’s cloaked with the potential threat of an impending crash.
For Fat Snax, a brand selling low-carb and keto-friendly snacks, it’s the top non-paid result when Amazon shoppers search for “keto cookies.” After it began selling on Amazon in 2017, about six months after the brand launched, Fat Snax hit seven-figure sales as a third-party seller, with items reviewed more than 2,000 times. It’s been a quick and exciting growth spurt, but chief marketing officer Brian Hemmert is wary.
“Amazon had been growing fast enough that we couldn’t pay attention to growing other business channels, but then we realized how addicting that could be,” said Hemmert. “We’re the Amazon Choice brand, but what if that changes or if we get delisted for something out of our control? We could be totally screwed. So that’s the fear: You lose the SEO rank, you don’t have a customer email list, so you can’t activate those customers again, and they’re gone.”
Fat Snax is just one among Amazon’s more than 1 million third-party sellers, which make up more than 50 percent of Amazon’s total sales. Most of them are small businesses that often find themselves in an uncomfortable situation with Amazon. Despite issues, including a lack of seller service, customer data and insights and a tendency to change course without communication, no marketplace compares to its reach.
What Amazon cares about first and foremost is its customer. Unlike a traditional retailer, it’s not competing on the brands and sellers it can court. Reach grants control: Amazon dictates seller strategy. And no matter how much Amazon makes sellers squirm, they’re not taking their business elsewhere, at least not as long as they’re still profiting through the marketplace. (Amazon takes 15 percent commission for third-party sales, but that climbs to 30 percent if orders are shipped through the Fulfilled by Amazon program). The best bet, in fact, is to invest more.
“It’s a double-edged sword,” said Ed Rosenberg, the founder of Amazon Sellers Group, a group for businesses selling on Amazon.
The Amazon mindset
The team at Rise Brewing Co., which sells canned lattes and cold brew, is investing in building its business on Amazon now in hopes that there will be an even bigger payoff down the line. The brand has wholesale relationships, partnerships with other online sites like Jet.com and Thrive Market, and its own e-commerce site, but Amazon (through which it sells third-party, not wholesale) accounts for the majority of business, although the brand wouldn’t share how much.
“We started selling on Amazon without much expectation — we thought it would be a nice-to-have channel. But it took off, and the more we put into the business, the more we were getting out of it,” said Ryan Williams, senior manager of finance and special products at Rise Brewing. “[Bezos] talks about the customer being No. 1 for them, and that’s apparent as the seller. You take a backseat to the customer — Amazon doesn’t care if the seller is happy; it cares if the customer is happy. So we’ve taken on that mindset.”
Rise Brewing believes embracing the full suite of Amazon products will pay off. It has increased its Amazon business by taking advantage of features that became available to it as the brand’s sales have increased incrementally. It buys pay-per-click ads and paid search ads from Amazon, it uses product page features like videos and image carousels. To improve customer service, it includes notes in every shipment (fulfilled by Amazon) about how to get in touch with the brand if there are any issues. But Rise doesn’t have any insight on its Amazon customers, which Williams said is frustrating, especially considering how Amazon is using that data to its own advantage. That means it misses out on opportunities to retarget or upsell a customer on a keg.
Still, Rise has reaped rewards from Amazon: Earlier this year, the brand was part of a pilot for an international shipping push for Amazon, and it was assigned its first U.S. account manager to help facilitate that. Next, the brand has its sights set on Whole Foods and Amazon Go.
“In our category, if you’re smart, you’re setting up your brand for success so you can be included in one of those stores,” said Williams. “It’s not like a traditional wholesale retailer that makes decisions based on a buyer’s attitude. Amazon has so much data, there’s no way that won’t end up influencing decisions for Whole Foods and other retail possibilities. That’s a motivator for us.”
The problem is that it’s a leap of faith, said Williams. There’s no way to know as a seller what Amazon will ultimately decide is best for its customers and business, so Amazon has all the power. Amazon Go could be entirely stocked with private-label brands, for instance, which Williams said is a frightening thought.
“Every year, Amazon introduces changes that shift work onto the sellers’ shoulders. As a third-party seller, you always have to be thinking one step ahead: What do these changes mean to me? How do I compete?” said Fred Killingsworth, founder of the Amazon consultancy Hinge and a former business development manager at Amazon. Those changes include a potential “One Vendor” marketplace that would remove the option to choose between wholesale and third-party. “You have to think around these things knowing how Amazon communicates and that a small change can derail or boost a business with hundreds of millions of dollars flowing through.”
Out of the void
Not all sellers want their brands to live and die by Amazon’s rules, but detaching entirely is difficult. Fat Snax has been focusing on building its direct business and establishing in-store retail partnerships, but Amazon still has a hand in those sales: through Amazon’s multi-channel fulfillment program, all of Fat Snax’s direct sales are shipped by Amazon in order to deliver in two days.
“Our Amazon business isn’t going away, but we need to diversify so we can focus on our own customer,” said Hemmert.
Even a worst-case Amazon scenario doesn’t scare sellers away. One seller learned on Nov. 15 that his entire holiday shipment wouldn’t be sold because of a hazmat violation. Amazon didn’t provide any more context (or respond to a request for comment).
“It’s a nightmare. They throw this at me after I ship all my holiday inventory, and it derailed our business right when it’s the busiest time of the year,” said the business owner. “So it’s a learning lesson. Except, you have no recourse. I can’t pull out. There’s no course of action other than to hope it doesn’t happen again.” Amazon accounts for 50 percent of the company’s business.
It’s not yet total domination. Amazon has managed to make less of an impression in other categories, like fashion, which it has yet to crack. Aaron Luo, CEO of Caraa, an accessories brand selling bags retailing between $200 and $400, said that the lack of discovery for fashion on Amazon made it a less compelling place to be.
“It makes sense for basics, but for a specialty luxury retailer, the customer isn’t there, so we don’t need to concentrate our efforts there,” said Luo.
But for businesses already all-in, there’s really no out, no matter what changes are to come down the pipeline. Despite the holiday disaster, the seller with the hazmat violation said he won’t be ditching Amazon any time soon.
“It’s just not practical to drive business elsewhere. They have such a footprint, and it’s only growing. While I’m always investing in the other channels and trying to diversify, I just can’t imagine a scenario in the short term or long term where Amazon is not a part of the puzzle,” the seller said. “The burden is on me — how do I become smarter about it?”
Subscribe to the Digiday Retail Briefing: A weekly email with news, analysis and research covering the modernization of retail and e-commerce.
Member ExclusiveAs headwinds emerge, DTC brands bet on early growth to carry them through the rest of the year
From March through July, direct-to-consumer startups in categories like personal care products and athletic apparel reported astronomical growth. Now, is a slowdown on the horizon?
Member ExclusiveWhy it will be hard for BigCommerce to dethrone Shopify as the DTC platform of choice
In the direct-to-consumer startup space, the response to BigCommerce's IPO this week was muted, thanks to Shopify's dominance.
Member ExclusiveAfter a quiet three months, DTC brands resume launches
After months of Instagram posts about how "we're all in this together," and turning their factories into production centers for masks, direct-to-consumer brands are finally starting to return to business as usual. That's particularly evident by the number of new startups entering the market.
SponsoredPublishers: Assessing risk and ensuring payments in times of crisis
As the industry navigates the continued impacts of COVID-19, here’s the questions publishers should ask their programmatic partners or ad management providers to protect themselves from clawbacks and lost revenue.
Member ExclusiveThe dream of the DTC exit is fading
Last week Lululemon announced plans to acquire Mirror, a connected fitness startup, for $500 million. It may give a false sense of hope to DTC startups about what type of exits are possible in this environment.
Member ExclusiveHow DTC startups fall flat in marketing their values
Direct-to-consumer startup founders have found themselves in a number of unprecedented situations over the past three months -- from having to keep their company afloat while stores were closed to having employees confront them about racism within the company. Many of these same startups have also found themselves in hot water for how they responded to these situations. The issue at hand is simple: customers feel like these companies aren't practicing what they preach.