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What's The Next Move For Amazon Aggregators?

Updated: Oct 13, 2022

What's the next move for Amazon aggregators?

Amazon aren't the only ones to capitalize on the success of their small business sellers.

While Amazon sellers may have seen a surge of interest from consumers over the past 24 months, representing close to 60 percent of the retailer's business in 2021, entirely new developments and industries have sprouted in the wake of Amazon's third-party surge over the past few years.

But perhaps the biggest development of all in 2021 for Amazon sellers? The rise of the Amazon aggregator market.

It's a tempting proposition for many third-party sellers hoping to make a profitable exit from the Amazon landscape. But can the market for Amazon brand aggregators continue to thrive in the face of new challenges in eCommerce?

Key Players in the Amazon Aggregator Market

Key Amazon brand aggregators to be aware of

Thrasio may dominate the Amazon aggregator market with over $750 Million being raised during its most recent round of funding, but they're hardly the only ones to capitalize on acquiring Amazon businesses.

Amazon aggregators first drew attention in 2021 after the announcement that Seattle's Cap Hill Brands managed to secure $150 Million in funding. Not to be outdone, Austin's Elevate Brands secured $372 Million in November 2021, while New York's Forum Brands and the German based Berlin Brands Group managed to raise $100 Million respectively in that same period.

But perhaps the most significant indicator of interest in Amazon aggregators was in the EU, which saw over $1 Billion raised in a single day in September 2021.

But the 2022 market for Amazon aggregators is a different beast entirely. According to a recent review from Marketplace Pulse, funding has decreased by a disheartening 80 percent in 2022 compared to the previous year.

Yet in spite of this, it was recently announced that Elevate Brands has acquired an additional $400 Million in financing, bringing the total amount of their funding to just under $600 Million to date.

For every success story, there's a failure or three for both brands as well as Amazon aggregators. But how did the market grow so rapidly? And what does the future hold?

Why the Amazon Aggregator Market Grew in 2021

Measuring the growth of Amazon aggregators

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.

The third party seller market is one that has helped sustain Amazon, even as they saw its stock performance take a rollercoaster ride during 2021. That's largely because the new wave of digital consumers demand digitally native brands. Amazon FBA brands know far too well that consumers demand efficient fulfillment options and service in addition to a high performance product.

But taking a brand off Amazon can result in a disconnect—particularly for aggregators who fail to take into account exactly how much time and effort it takes to manage a brand's fulfillment services.

The Potential for Amazon Sellers

Is the Amazon aggregator business high potential for sellers?

The performance of Amazon businesses has spawned an entirely new empire that could very well threaten to compete with Amazon itself. In September 2021, leading third-party health and wellness supplier Pharma packs went public via an SPAC merger with a valuation of $1.55 Billion.

Private label brands have always provided low overhead in manufacturing costs for Amazon sellers, allowing sellers a greater focus on marketing strategies and strategic development than in house brands. But private label brands aren't a tremendous focus for most aggregators unless they have a proven track record of sales and innovation behind them.

The digital economy demands freshness and innovation to survive—neither of which are always factors physical retail can provide. Marketplace Pulse 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 aggregators looking to acquire brands may not always take into account that a brand's history evolves at the same rate consumer purchasing habits do.

The Perils and Pitfalls of Amazon Business

The same issues facing Amazon seller aggregators are the same facing eCommerce

The reality is that eCommerce itself can present an entirely new set of challenges private equity may not necessarily be aware of.

In August 2021, 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 dangerous challenge for any 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 potential for $4 Trillion loss of revenue in supply chain disruption which presents a pitfall for eCommerce management. It's the operational strain of managing multiple brands, particularly for agencies without extensive expertise in the quirks of the Amazon marketplace.

"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

Can the sales generated by Amazon brands continue long enough to maintain aggregator interest?

Amazon is facing their own crisis in managing digitally 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 Amazon 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.”

Brand Growth and Amazon Aggregators

Amazon merchants and brand development

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 Amazon aggregators have any strong interest in looking at other platforms—including Walmart, Amazon's chief competitor.

But at a time in which the sheer plethora of Amazon sellers has led to market saturation and undifferentiated product lines, brands can't afford to worry about aggregator acquisition unless their offerings are unique, viable and able to establish long-term consumer interest. It can be enough of a task to maintain visibility on Amazon. And brands who can't may find Amazon aggregators aren't quite the gold rush they appear to be.

There's a difference between buying a brand and building a brand. And there's a difference between developing an Amazon business and acquiring one.

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.


Need help developing a fully fledged brand identity? Find out more at Color More Lines.

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May 27, 2022

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