As of November 2021, the Amazon aggregator marketplace was valued at approximately $10 Billion—a number boosted in October by news that top aggregator Thrasio raised over $1 Billion in their latest round of Series D funding, despite their initial plans of going public being temporarily shelved. But the aggregator market isn’t an overnight phenomenon. There’s a reason why private equity interest in Amazon third-party sellers has grown by leaps and bounds since 2020, and it’s not simply a result of the pandemic. It’s a result of sales performance.
Gross merchandise sales volume in the third-party seller market on Amazon grew by nearly ten percent between 2015 and 2018, well before both the pandemic and the subsequent surge in eCommerce. But that number grew exponentially by over 33 percent from $18.2 Million to $24.5 Million between Q2 2020 and Q2 2021. Those numbers aren’t flukes. Nor is acquisition solely the domain of eight figure brands with an IPO. Seller acquisition is a high potential market—but not without its risks.
While traditional multinational brand acquirers have suffered from a lack of insight into digital strategies, the Amazon aggregator business model is predicated on a digitally native foresight of market value and consumer trends. A data rich environment like Amazon is in a unique position for brands looking to exit. It provides actionable and understandable analytic reporting in addition to historically reliable sales performance. For equity firms specializing in digital commerce, it’s only natural they’d turn to Amazon first as a marketplace resource.
At least, ideally. But for every Amazon aggregator success story, there are countless other equity firms failing to understand digital-specific retail challenges. But supply chain snags, integration delays, stockouts and inconsistent sales data are only part of the challenges third-party brands faced in 2021. Maintaining visibility on Amazon can be difficult enough for many newer brands to expand their presence. But the dilution of product strength can be even greater in a relatively unregulated environment, particularly for brands who fail to distinguish themselves from their competition. And the recurring concerns over bad actors, counterfeiters and product liability on Amazon weren’t necessarily factors many starry-eyed investors took into consideration before throwing their hats into the aggregator market.
What are Amazon Aggregators Looking For?
There’s a reason why aggregators choose Amazon to source prospective brands over Walmart or Shopify. No matter how unpredictable its performance may be in the stock market, Amazon’s market share in eCommerce isn’t likely to dwindle anytime soon. Diversifying your sales channels may increase your own brand visibility, but aggregators are interested solely in the percentage of your sales on Amazon specifically, with an ideal profit margin of at least 20 percent. That’s why Amazon aggregators are solely interested in registered brands, although private label product lines can also be considered depending on their sales volume. While many aggregators may have different requirements for minimum sales of anywhere from 15 to 75 percent on Marketplace, most will not require exclusivity on Amazon.
More specifically, Amazon aggregators are looking for an evergreen product line when considering a purchase. They’re concerned about long-term consumer interest, not a line requiring constant redesign, adherence to changing regulatory standards or diversity. If a seller has roughly 25 different SKUs grossing $10 Million in total, it’s nowhere near as impressive to an aggregator as sellers with $5 Million in sales but a product line of only three SKUs. A recent survey from Fortunet released in October 2021 indicated that the Home and Garden segment was the single most popular product category among aggregators at 88 percent, followed by Pet Supplies (78 percent), Baby Products (67 percent), Outdoors (64 percent) and Health and Personal Care (64 percent.)
Most aggregators seem to be fairly confident in their ability to scale a product line on their own post-acquisition. Yet Fortunet’s findings reveal that 37 percent of buyers are willing to offer a partial acquisition, with over 90 percent solely interested in purchasing the assets of a business with a minimum asking price of $500,000 to $1 Million. That can be largely the result of underestimating the operational difficulties in managing digital retail. The end goal may be profitability for an aggregator; but those who fail to understand the complexities and challenges of retail eCommerce quickly find themselves over their heads in managing a digital native business. And if you don’t have the resources to scale your business in spite of those challenges, an aggregator won’t necessarily have that access or experience.
Amazon aggregators, like any private equity investor, are bottom line entities. But they may not have considered just how much effort goes into meeting that bottom line.
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