It’s not an exaggeration to state that Amazon has permanently altered the face of the retail landscape—not the least of which has resulted in a much greater accessibility for small businesses.
Prior to the launch of Amazon Marketplace in 2000, sellers had to rely on chance as much as costly marketing strategies for the slightest hint of retail visibility. But the necessary capital and supply proved to be an excessive gamble, particularly in the face of a dot com bust which saw close to 900 promising new startups fold as a result.
Today, small business sellers represent approximately 60 percent of Amazon’s gross merchandise value—a far from meager distinction given last year’s revenue of $386.1 Billion. But even with over 200,000 new third-party sellers being added to Amazon Marketplace in 2020, it’s not impossible for a small business to establish a successful non-Amazon storefront.
Digital retail is far from a level playing field. While Amazon may hold the vast majority of eCommerce market share in the US, are their small business investments exactly what they claim?
Amazon’s Investments in Small Businesses
When Amazon announced an investment of over $18 Billion in small business services in September of last year, it wasn’t necessarily a selfless gesture of gratitude. Amazon is all too aware of the impact that third-party marketplace sellers have had on their sales over the past twenty years. But their need to expand has been a consistent hallmark for the retailer, with the pandemic only serving to boost both physical and digital presence. The result was a reported 50 percent increase in Amazon’s logistics and fulfillment network, with over 60 percent of Amazon FBA warehouse inventory space being allocated to third-party sellers. That expansion might be encouraging news for Amazon’s logistics team, but how has it affected sellers?
Earlier in October, Amazon released their annual Small Business Empowerment Report for 2021. Among the findings claimed by the retailer was an increase of some 45 percent of small businesses new to Amazon Marketplace, leading to the creation of an estimated 1.8 million jobs in the US. Yet Amazon’s definition of “small business” relies on the same standard established by Gartner, typified by an annual revenue between $500 Million to $1 Billion. By comparison, SpaceX (Jeff Bezos’s chief competitor in rocket development and exploration) logged approximately $2 Billion in revenue in 2018. Hardly an insignificant sum, but just barely enough to escape a standard designation of a small business. Yet according to Amazon, the annual revenue for the average US-based seller was no more than $200,000 (an increase of $25,000 from the previous year) in spite of their own claims that the number of sellers surpassing $10 Million in annual sales increased by almost 40 percent in 2021.
Another claim from the report was an average sales lift of 20 - 25 percent for over 70,000 new sellers who subscribed to Amazon FBA last year. It’s far from an insubstantial number; but is it the result of Amazon or the result of a successful product line? It’s not particularly certain; nor is it clear how that number will play out against the ongoing supply chain crisis affecting all retailers—a crisis Amazon has been curiously silent about compared to their primary competitor, Walmart.
A Small Business Advantage on Amazon?
Not every seller solution Amazon introduced in 2021 solely resulted in their own expansion and gain. A partnered test pilot program of Amazon Lending in September promises to drive small business expansion through short term loans of up to $100,000 for qualified sellers with a standard APR of 8 to 9 percent, while a $100 Million small business investment during Prime Day 2021 resulted in reported sales of over $11 Billion—and a 12 percent revenue increase for Marketplace sellers.
Yet despite claims of an increasingly broad sales advantage for third-party merchants on Amazon, it’s not uncommon to hear complaints of Marketplace practices being as confusing as they can be cutthroat. That’s largely because visibility can frequently be algorithm-driven, a practice Amazon has reportedly exploited to their own advantage. Without an effective strategy in place, Amazon’s claim of six-figure-plus growth for new sellers isn’t always realistic. While 60 percent of Amazon sales are the result of small businesses, it was recently estimated that only 19 percent of third-party sellers earn annual sales of over $300,000.
Given frequently unannounced policy changes as well as recent allegations of internal search result manipulation, new sellers might be justified in asking if it’s possible to succeed on Amazon. The answer is yes; so long as you understand what you’re up against. Amazon is neither a rational marketplace nor a particularly transparent one. They may not be the only game in town, but they are the most successful. But it’s a success that comes with both advantages and disadvantages for sellers. Both visibility and growth can be achieved on Amazon, so long as you understand both its landscape and the ability of your own product line to navigate it efficiently. That means understanding best practices on Amazon as well as understanding your own customers. It’s easy enough to be cynical towards Amazon’s investments in small businesses. After all, third-party sellers are the majority of their sales traffic. And Amazon’s not going to jeopardize that volume. But even the most jaded of sellers can hardly deny that Amazon continues to innovate retail as much as they innovate marketing solutions.
You can’t necessarily fight Amazon’s system. But understanding its system can sometimes mean fighting your own limitations as a brand.
Color More Lines provides white glove, global account management of Amazon, Walmart, and other eCommerce platforms so mission-driven companies can focus on new product development, branding and growth strategies. Find out more at Color More Lines.