Amazon’s success story isn’t entirely the result of the pandemic. But they’ve certainly capitalized on the eCommerce surge over the past 24 months.
And so have third-party sellers, who currently account for over 55 percent of all products sold on Amazon. It’s a growth rate that’s spawned a number of entirely new developments and industries, with the biggest development in 2021 being Amazon aggregators. Thrasio may dominate the market with over $750 Million being raised during its most recent round of funding, while the sector recently saw over $1 Billion raised in a single day in the EU. But can the aggregator market continue to thrive in the face of new challenges in eCommerce?
The Rise of the Amazon Aggregator Market in 2021
The Amazon aggregator market didn’t sprout up overnight. The concept of private equity-based rollups is almost as old as private equity itself. But Amazon aggregators became an overnight success in 2020 fueled as much by the pandemic as the need for a data-rich platform—factors which Amazon capitalized upon to the tune of over $386 Billion.
It’s a market that has helped in part sustain Amazon even as the e-tail giant saw its stock performance take a rollercoaster ride during 2021. That’s largely because the wave of new digital consumers demands digitally native brands. And the performance of those brands has spawned an entirely new empire that may threaten to outgrow Amazon itself. In September 2021, leading third-party health and wellness supplier Pharmapacks went public via an SPAC merger with a valuation of $1.55 Billion.
The digital economy demands freshness and innovation to survive—neither of which are always factors physical retail can provide. It was recently estimated that the amount of cumulative capital being poured into the Amazon aggregator market reached approximately $10 Billion in September 2021. But the third-party marketplace on Amazon itself is populated by as many inferior brands as it is by top sellers. Performance is never stagnant. And eCommerce itself can present an entirely new set of challenges private equity may not necessarily be aware of.
The Perils and Pitfalls of eCommerce
In August, it was reported that one of China’s busiest ports temporarily shut down after a single employee contracted the novel coronavirus, placing additional burden on an already overwhelmed global supply chain. With retail sales now predicted to exceed $4.44 Trillion in the US at the end of 2021, the news presented a particular crisis for retailers. But navigating a global supply chain crisis presents a particular challenge for a digital brand. Prior to 2020, much of the inventory management strain in eCommerce was the result of overstock. In 2021, it’s as much a question of stock-outs as it is any number of factors—not the least of which is market saturation.
The Amazon aggregator market has grown by $7 Billion since April of 2020. With over 70 agencies operating in at least 12 separate countries, there’s every reason to consider the segment to be the digital equivalent of a gold rush. And it can certainly seem attractive to over 15,000 third-party brands on Amazon earning in excess of $1 Million—some of whom can reportedly expect an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) up to 8 times higher in their valuation as a result. But it’s not just the $4 Trillion loss of revenue in supply chain disruption which presented a pitfall for eCommerce management. It’s the operational strain of managing multiple brands, particularly for agencies without extensive expertise in the quirks of Amazon.
"Aggregators are gobbling up brands faster than their internal teams can grow them due to resource constraints and expertise,” said Josh Levine, Managing Partner at Color More Lines. "Amazon is a lucrative but challenging marketplace to grow brands without deep, data-driven knowledge to scale successfully."
The Future For Amazon Aggregators
Amazon is facing their own crisis in managing digital native brands; this time in the form of bad actors. In May, a widely publicized expulsion of fourteen different top-selling brands for review manipulation resulted in a loss of sales of over $1 Billion. If aggregators aren’t careful in selecting brands, that loss could be potentially much higher. The dynamics of eCommerce are entirely different from other forms of tech acquisition. Brand growth in the former is largely contingent on short-term returns—and the loss of an Amazon-based identity could result in the loss of brand identity altogether.
"Our Amazon and Walmart agency is turnkey and augments aggregator teams to help them grow their brands faster than they could on their own," explained Levine. “Brands need to ensure that the firms they work with also have the experience and dedication to foster their own growth.”
There’s no telling if the aggregator market is a bubble poised to burst. And at the moment, there is no word on whether or not larger aggregators have any strong interest in looking at other platforms for brands—including Walmart, Amazon’s chief competitor. But there’s a difference between buying a brand and building a brand. Digital commerce is only as strong as the brands that help build it. It’s not a question of portfolio growth for an agency, but of the growth in a brand’s development.
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.