Buy With Prime E-Commerce Uncategorized

The Perfect Storm for Amazon Sellers – Part Two

Welcome to Part 2.  In the previous installment, we attempted to define elements of the current economic “storm” that we’re facing.  In this follow-up section, we’ll put this into better context with an Amazon filter.

The Inventory Challenge

As noted in Part 1, due to a variety of factors, there is a current oversupply of goods in warehouses and stores across the US. This surplus of inventory made it especially challenging in Q4 for sellers to get new products in place on both virtual and physical shelves ahead of the critical holiday consumer spending period including Black Friday, Cyber Monday, and days heading into Christmas and beyond. This oversupply has forced brands to reevaluate and reconsider how to utilize on-hand inventory both now, and in the future. 

Oversupply has created challenges for sellers on Amazon including inventory that has simply not moved.  Storms can reveal readiness or a lack of that same preparedness.  And of course, not all brands and or sellers can be nimble. As noted in Part 1 an awareness of unit economics and the impacts of regular testing of pricing elasticity is a tried and true tactic to influence inventory levels. 

Experienced executives understand the situation and should deploy these strategies to generate sales when additional purchase levers are less apparent. This requires nimble teams on the brand side that understand the need and often the urgency, for aggressive product pricing to move products out of facilities.

Sometimes it might be as simple as recognizing the scope/scale of available products in a warehouse compared to “normal” pricing and in turn how those variables impact the sales cycle.  In other words, moving prices upwards when inventory levels are low and being prepared to adjust pricing downward and back to “normal” when more inventory is available. It may seem counterintuitive but pricing and availability are both levers brands can and should use to accelerate or slow down sales.  

How did we get here?

Is this a case of an inability to plan and forecast pre-pandemic? Will this be a lasting impact on post-pandemic inventory that has not and will not move? It’s not a hedge and we shall see. Brands and sellers were forced to scramble to obtain inventory during the pandemic and in some cases, were dependent on third-party manufacturing that went months behind on purchase orders. This has left brands and entrepreneurs who sell on Amazon with a host of challenges that are essentially unprecedented. This uncertainty has wreaked havoc on every link of the supply chain and inventory process. In many ways, this verdict of ambiguity can result in weekly or even daily storm cycles that brands and businesses did not (or could not) anticipate. 

Understanding how to read the business horizon and navigate these kinds of challenges can either make or break a brand or seller. If you have read this far – it is likely that you too are in stormy waters and may need a life jacket or a life raft.

The FBA problem

A third storm element (and one with even bigger waves) creating challenges for sellers is the status of warehouse space at Amazon fulfillment centers for brands leveraging Fulfillment by Amazon (FBA). Running lean is the answer. In fact, if products are sold via FBA – the goal should be to turn that inventory before 60-90 days. The longer items remain in FBA warehouses, the larger the costs of storage in addition to sunk costs of business capital that cannot be accessed until the items are sold. 

If history is an indicator of future behavior, Amazon will continue to simply increase the costs of FBA. If calmer waters are not reached, these products will remain stuck, stranded, and languishing in FBA. And as you know, only Amazon benefits from that scenario

In Conclusion and Land Ahoy! 

How do brands navigate these challenges?

  1. Have a keen understanding of unit economics.
  2. Understand the options of price elasticity and be prepared to use pricing in combination with available inventory to generate revenues and avoid stock-outs.
  3. Optimize, strategize, and plan for fulfillment.  What items are truly the best fit for FBA? If sales volumes are insufficient – use other strategies such as Fulfilled by Merchant (FBM) and better yet, seller-fulfilled Prime. 

If you are a CFO, brand owner, or an Amazon seller – it is clear that you are experiencing a perfect storm that needs careful attention and thought as it could have long-standing impacts on your business. It’s not all doom and gloom.  And just like in nature, storms pass.  Brands that understand the elements listed above will be much safer and closer to calm waters than their competitors. If you feel the need for an experienced sailor – the team at Equity Commerce is looking forward to hearing from you.


Buy With Prime E-Commerce

How (and Why) Buy with Prime is the Future

A big question in the investor community and on Wall Street relates to Amazon’s future.  Has Amazon’s marketplace business plateaued?  This central question is the frame of reference (and arguably, the catalyst) for the introduction of the Buy with Prime program in the fall of 2022. 

With the continued emphasis on Buy with Prime, it’s becoming apparent that Amazon wants to share (if not infuse) some of its eCommerce DNA with smaller and medium-sized brands.  By opening access and creating products out of what were formerly discrete business units (advertising) and services (fulfillment, payments)  – such as we’re seeing with Buy with Prime – we believe there is a HUGE opportunity. By using the best parts of Amazon not called “the marketplace” these emerging online businesses have the power to automate full-funnel advertising tactics and world-class logistics – and focus on building a brand through product development and customer service.  

In this post, we take a fifteen thousand-foot view of Buy with Prime’s potential future, how Amazon is using the program as a trojan horse, and what else we see in our ecommerce crystal ball.

The Evolution from Closed to Open

Amazon started out as an online bookstore that sold its products to consumers.  Books by their nature were data-friendly in terms of building an online catalog and Bezos and team were able to quickly create Earth’s Biggest Bookstore

In 2000, after some experimentation with online auctions and zShops, the Amazon marketplace launched with the goal of creating an endless aisle with a nearly infinite product selection. Amazon’s management team was clearly focused on “getting big fast” while understanding that access to more and more products and categories would play a vital role in both customer acquisition and customer retention. The combination of selling to consumers directly (1P or first-party via Vendor Central) and via the marketplace (3P or third-party via Seller Central) offered Amazon a clear path and even some friendly competition between its retail team and the seller community it was nurturing to grow listings and dramatically expand selection. 

Trojan Horse, Shopify Hack, or My Little Pony?

No secrets here, but Amazon has invested heavily.  First in its logistics and warehouse network (aka “the moat”) and more recently in its advertising capabilities. The company is famous for solving internal problems first and then offering these same services to outside third parties to generate additional revenues. Think about Amazon Web Services or AWS – and how Amazon created it internally and oh by the way, essentially invented a new type of business based on selling cloud infrastructure.  Amazon is in an enviable and unique position in that it can offer access to other businesses to leverage its logistics network and advertising solutions.  Oh and the cherry on top?  This also negatively impacts rivals such as Shopify and Google. 

Q: What is the biggest challenge facing small to medium-sized e-commerce businesses? 

A: Finding and retaining customers. 

In 2021, Shopify opted to partner with Google and Meta to create a way for Shopify merchants to create and target lookalike audiences with ads on their platforms fueled by sales data from their stores. 

In essence with this partnership, Shopify made the decision to stay out launching its own high-margin advertising service. Why? Not only would this help Shopify to generate more revenue (investors really like that, by the way) but it would also give them a full-funnel advertising play.  

What do we mean by full funnel? Currently,  Amazon is the only advertising solution that also owns transactional data (now almost three decades worth) that has been curated from customer product searches to customer purchases. This data in turn enables a compelling advertising engine for sellers and brands to efficiently and intuitively target Amazon’s most valuable customers, Prime members (now more than 200 million worldwide!). 

In contrast, Google’s business model has become almost entirely dependent on search advertising revenues.  We won’t even mention the Department of Justice and its recent civil antitrust suit beyond this sentence.  But clearly, any advertising competition from Amazon adversely impacts Google’s revenue long term. 

It’s our position that Amazon’s Buy with Prime program will effectively siphon off advertising revenues from Google. It is also with noting that for Amazon advertising to succeed and truly become a Google “killer” Amazon will require significant scale from off-of-Amazon for the service to deliver consistent profits.  And this is where we believe that Buy with Prime also hits the target and like with all other elements of Amazon, the goal is always to get the proverbial flywheel accelerating as quickly as possible.

New Business Model or What?

We see an opportunity for a new and leaner business model to emerge. Direct-to-consumer (DTC) brands can begin to dip their toes into Amazon’s waters by leveraging Buy with Prime instead of looking for third-party logistics (3PL) partners and instead of using that increasingly tired and traditional digital media (sorry Google). 

The new business model is neither completely direct-to-customer nor is it marketplace-native but rather, the new approach relies upon leveraging parts of a very strong third-party (Amazon logistics and Amazon advertising) to grow and nurture a brand to success and profit. 

The efficacy of this new business model is of course predicated on one thing.  Money!  

Amazon must offer better pricing than 3PLs. Amazon must have better rates than incumbent freight carriers.  And finally, they must make their advertising and marketing more efficient and affordable than other media solutions.  If they can achieve this triple play in costs, efficiency, and effectiveness, watch out.

While incumbent and emerging DTC brands will continue to use software-as-a-solution (SaaS) platforms like Shopify, BigCommerce, etc. to build websites to sell their products to consumers, it’s the emergence of logistics-as-a-solution (LaaS) that has been unleashed via Buy with Prime that serves as the ultimate wake up call to 3PLs, freight carriers, and digital media incumbents. 

So what does this all mean? While Buy with Prime is still new and in development, the jury is out! Buy with Prime if it is not nurtured, supported, and maintained by Amazon could lead to nothing.  However, we believe the stakes are too massive for Amazon to “launch and leave” this program.  Amazon’s been building and getting big fast for almost 30 years now, we feel confident that Buy with Prime is the future of Amazon and ecommerce in general. If you agree, disagree, or would like to debate any of this, please reach out to Equity Commerce today.  We look forward to hearing from you.