Amazon is the most popular e-commerce retailer in the United States, boasting $136 billion in sales in 2016 and almost matching that number in just the first three quarters of 2017. Its stock value has skyrocketed, more than doubling in the last year.
Scores of traditional brick-and-mortar retailers have opened Amazon storefronts to take advantage of its enormous customer base. But should you join them?
Amazon’s Effect on Retail: If You Can’t Beat ‘Em, Join ‘Em?
Many have credited Amazon with the decline of the retail industry:
Many retailers wonder if they can win in such a landscape. For all its benefits, the Amazon Marketplace also presents ferocious competition.
Should more retailers be taking advantage of this e-commerce channel? Let’s go over some of the pros and cons.
Pro: High Conversion Rate
There’s a 15% conversion rate once a buyer lands on your product page, which is pretty high.
- The key: The title of your listing must be spot-on, and your images must be fantastic. Use bullet points and great descriptions.
- You must win the buy box:
Pro: You’re in Good Company
Today, third-party sellers comprise more than half of Amazon’s total sales. Often, sellers are able to increase their sales by over 50% when they join Amazon Marketplace! Clearly, the channel works well for a lot of retailers. Especially if you are a larger, multi-location business with a lot of inventory and a good way to sync it across multiple channels, Amazon could work well for you.
Pro: A Prime Place to Find Customers
Amazon is a powerful search engine in its own right. The main thing Amazon has going for it is its incredible customer base. 55% of customers in the U.S. start their shopping journey on Amazon, compared to 26% on search engines. In fact, the site draws about 184 million visitors a month.
Amazon Prime members in particular make up around 65 million extremely active customers. Because they pay $99 a year for free 2-day shipping, they are actively looking for opportunities to use their membership so they can cash in on their investment. In fact, Prime members spend on average $1,100 on the site per year, compared to $600 for non-Prime users.
One thing to note, though, is that Amazon Prime customers are usually not looking for unique or used products. They have been conditioned to expect new items.
Con: Want to Use Prime? You Have to Use FBA
Let’s say you want to give Amazon a try, and you want to go all in and target Amazon Prime customers. You will find that most of your items are not Prime-eligible unless they use Fulfillment by Amazon. Fulfillment by Amazon includes packing, shipping and handling, customer service and returns. This is the only way Amazon knows it can ensure 2-day shipping from smaller businesses.
The problem for many businesses will be the cost. Cost per unit sold will usually run between $2 and $4, but it can much higher if your item is oversized.
Storage Costs
If you use Amazon’s fulfillment services, you’ll need to take storage costs into account as well as the shipping costs. Amazon’s fulfillment services can make shipping and customer service a lot more convenient, but they can also be very expensive if you have to store something for an extended period of time, as is often the case with seasonal inventory.
Monthly Storage Rates
| Month | Standard | Oversize |
|---|---|---|
| January – September | $0.64/cubic foot | $0.43/cubic foot |
| October – December | $2.35/cubic foot | $1.15/cubic foot |
What? Oversize is actually cheaper than standard? There are a couple of factors to explain this:
- According to Amazon, smaller packages actually have more complex storage needs
- Oversize packages may be cheaper (per cubic foot, not overall) to store, but remember their fulfillment costs are anywhere from 3x to 30x more expensive
Long-term fees apply to merchandise that is stored for more than 6 months. If you overstay your “Inventory Cleanup Date,” you are charged a whopping $22.50 per cubic foot on top of what you are already paying.
Another problem with using Fulfillment By Amazon is that whatever you have in Amazon storage, you obviously cannot simultaneously display in your shop. So you would have to pick and choose where your inventory goes rather than using Amazon as a supplementary channel to give an in-store item a wider audience.
Con: Posting and Automation
Similar to eBay, if you have multiple of the same item in the same condition, Amazon makes it easy to list and relist multiple items at a time.
Amazon does have an automated pricing feature that enables you to set rules — for example, minimum and maximum prices you’re comfortable with. Although the tool is easy and free, it can be time-consuming because you must set minimum and maximum prices for each item individually if they are in different conditions.
You should monitor this tool carefully if you choose to use it, because other sellers may set rules that automatically send your price down to the bare minimum, and the tool automatically combines sellers’ rules.
Con: The Cost
If you want to sell as a professional on Amazon, unlike an individual, you cannot simply list goods for free. So even if you decide to forego Amazon Prime and Fulfillment By Amazon, Amazon still gets a good chunk of your money.
Expect to pay $39.99 a month for your store, plus additional fees based on the value of the final sale.
The commission paid to Amazon depends on the category. Like eBay, most commissions are somewhere between 8 and 15%, and then you need to keep in mind your monthly store fees and costs for Amazon fulfillment services if you choose to use them. So all told, Amazon is generally more expensive than eBay.
There is no contract for individuals, and professional accounts pay month-to-month.
Con: Competition and Compliance (Amazon Is Watching You)
Not only are you pitted against other sellers in a rush to the bottom (especially if you use Amazon’s automated pricing tool that lowers your price when someone else lowers theirs), you are up against Amazon itself—a formidable competitor.
Amazon also does not have a high tolerance for quality issues and will quickly ban sellers. Although you may painstakingly inspect your inventory, sometimes it can be difficult to ascertain a product’s true quality, especially in categories like electronics. For this reason, you may want to only sell specific items on Amazon, such as jewelry. Make sure you can guarantee the item’s quality before posting it. Otherwise, you may end up with a horror story like this one.
Is Amazon Worth It?
To answer the question posed at the beginning of this article, resale shops have a chance to win on Amazon—but not a large one. Your chance of winning is bigger if your business sells new, lower-cost items in bulk.
That said, Amazon might still be a good channel for selling a smaller volume of high-value collectible items like guitars and jewelry—especially if you’re having trouble finding a good local market for some of your higher-end inventory. With these kinds of items, the higher sale price and margin can cover the investment. Amazon may also be worth the cost if you are a larger, multi-site business or use an external inventory management system that easily integrates with it.
Even larger-scale businesses should exercise caution, however, because of Amazon’s strict quality standards, its customer-centric mentality, its ferocious price competition, its low profit margin and the number of man hours required to manage Amazon listings.
When comparing eBay and Amazon, eBay seems to be a better online channel overall for secondhand sellers, while Amazon seems to be better if you specialize in new items. In upcoming blog posts, we’ll talk about online channels that are even better for secondhand shops—and how to integrate them into a dynamite e-commerce strategy.
Do you use Amazon? eBay? Both? What has your experience been?