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- Amazon’s third-party sellers continue to be a major part of its marketplace: Amazon CEO Jeff Bezos said the sellers are “kicking butt” last year to highlight their success.
- We asked e-commerce experts what’s ahead for Amazon’s marketplace in 2020.
- Top trends to watch out for include first-party suppliers moving to the third-party marketplace, a big move towards the Fulfillment by Amazon program, and more big brands ending their relationship with the retailer, among other things.
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With an estimated 8 million third-party sellers, Amazon is one of the largest online marketplaces in the world.
Those sellers account for almost 60% of Amazon’s sales volume, the company said last year, with the rest coming from its first-party wholesale side. It is why Amazon’s CEO Jeff Bezos said third-party sellers are “kicking butt” last year, as the marketplace continues to grow in size and influence.
But that scale makes Amazon’s marketplace an increasingly difficult place to sell for some of the merchants. They have to navigate through the constantly changing policies and stay on top of new services — all the while figuring out how to fend off bad actors that sell counterfeits or create fake reviews.
We spoke to over a dozen e-commerce experts to hear the biggest changes and trends in Amazon’s marketplace.
From safety compliance to one-day shipping, these are the areas they say are most important to sellers on Amazon’s marketplace this year:
More first-party suppliers will move to the third-party marketplace.
Amazon’s wholesale suppliers, commonly called first-party vendors, account for roughly 40% of Amazon’s sales volume. Their products are bought by Amazon, who then resells them at a higher margin.
But in recent years, there’s been reports of Amazon reducing its first-party business, pushing more brands to go third-party instead. By having more third-party sellers, Amazon can expand its product selection and increase profitability because it doesn’t have to buy inventory — while simply charging fees for using its marketplace.
For sellers, that means more competition in the marketplace. And for smaller suppliers, it means they have to learn how to sell as a third-party seller.
Amazon is expected to double down on this strategy, according to Kunal Chopra, CEO of etailz, a company that helps brands sell online. He says the bar to become a first-party vendor will only get higher this year, as Amazon’s focus on cash flow and profitability grows.
“Only the largest brands will be handheld on the platform through a more traditional retail model,” Kunal told Business Insider.
Ryan Mulvany, partner at Quiverr, a marketplace consultant, said many vendors are aware of this change, especially following last year’s Bloomberg report about Amazon’s rumored plan to “purge” small suppliers. In order to mitigate risk, these vendors are now looking for ways to move to the third-party marketplace, he said.
“Sometimes it feels as if Amazon is trying to push brands toward third-party selling,” Mulvany said.
In an email to Business Insider, Amazon’s spokesperson disputed Bloomberg’s story, saying, “any speculation of a large scale reduction of vendors is incorrect.”
“Like any business, we make changes when we see an opportunity to provide customers with improved selection, value and convenience, and we do this thoughtfully and considerately on a case-by-case basis,” Amazon’s spokesperson said.
More sellers will join Amazon’s fulfillment program to take advantage of one-day shipping.
Amazon made one-day shipping the default option for all Prime members last year. For third-party sellers, the best way to take advantage of that benefit is to use the Fulfillment by Amazon (FBA) program, which offers storage and shipping services for a fixed fee, says James Thomson at BuyBox Experts.
Thomson says that will make FBA even more popular among sellers. While they can technically do one-day shipping on their own, it’s impossible to compete with Amazon’s geographic coverage and fee structure, he said.
“The ramp-up of one-day delivery for Prime eligible products will make the use of Fulfillment by Amazon (FBA) even more critical than ever,” Thomson said.
But as Amazon pushes one-day shipping to more products and regions, the FBA cost will likely increase, according to Garrett Bluhm, founder of Vendient, an agency for Amazon sellers. The price for other services, like long-term storage fees, are also expected to get more stringent to “dissuade brands from holding slow-moving inventory at Amazon’s warehouses,” Bluhm said.
Amazon will more actively scrutinize safety compliance and counterfeit products.
Amazon has come under fire lately following multiple reports highlighting the sale of unsafe and counterfeit products on its marketplace. Regulators have also jumped on the issue, urging Amazon to tighten its grip around these products.
Rachel Johnson Greer, managing partner at Cascadia Seller Solutions, says Amazon has become more active in monitoring such products lately. In just the past few months, she says, Amazon has been asking for more documents that demonstrate product compliance.
“In 2020, Amazon is finally going to have to take product safety and counterfeit issues in a serious manner,” Greer said.
Will Land, Marketplace Valet’s director of brands operations, also said there’s been “large increases” lately in Amazon requiring sellers to submit certifications and license requirements before listing their products. The move is likely inspired by the continued criticism over “counterfeits and overall poor quality products” being sold on Amazon, he said.
“Amazon will be scrutinizing which products go for sale on their site,” Land said.
In an email to Business Insider, Amazon’s spokesperson said the company invested more than $400M to fight fraud, including counterfeit products, in its marketplace, and that it “strictly prohibits the sale of counterfeit products.”
Amazon’s overseas marketplaces will continue to grow.
Amazon currently runs 15 marketplaces around the world. But aside from the UK, Germany, and Japan, Amazon hasn’t seen significant growth in any of these overseas marketplaces yet.
That could change this year, according to Juozas Kaziukenas, CEO of Marketplace Pulse. Amazon will likely add more international sellers, and more US sellers will find it easy to sell in overseas markets too, he says, as the company’s logistics capacity expands to other countries. Within this year, he predicts, Amazon could launch one-day shipping in at least one of its largest overseas marketplaces.
“The marketplace will grow in 2020, but more importantly it will change around how many merchants are selling internationally, how and where they market their products, and how they handle fulfillment,” Kaziukenas said.
Globalization is one of the largest opportunities for Amazon sellers, says Oscar Barbarin, president of ARMR, a marketplace consulting agency. In particular, he said regions like the UAE and Australia are “land grab for brands,” as they remain relatively untapped markets for Amazon sellers.
“If you are the first in a new marketplace for Amazon, you gain significant advantage and are weighted heavily by its search algorithm,” Barbarin said.
Buying ads on Amazon will become even more important for sellers.
Amazon has become an advertising powerhouse in recent years, as more sellers and brands buy ads on its site.
That trend will only accelerate this year, driven by competition for more exposure on Amazon’s search results, ARMR’s Barbarin said.
“There’s an arms race to get in front of the consumer — and it’s become table stakes to participate in Amazon Advertising,” he said.
The bigger challenge is that Amazon is now dedicating more space to sponsored ads and new features, like “Editorial Recommendations,” which are product articles submitted by sellers. Amazon also puts a lot of products with its “Choice” or “Best Seller” badges at the top of search results, making it even more difficult for sellers to stand out.
“Ranking on the first page of an Amazon search result just got more difficult,” Land of Marketplace Valet said.
Amazon’s spokesperson told Business Insider that the “vast majority” of sellers have built their businesses without buying ads on the site.
“Sellers have access to advertising and promotion tools to help them to better promote their products in our stores and reach customers,” the spokesperson said.
More companies will look to sell on Amazon, but large brands may ditch the site.
Amazon’s sheer size continues to make it a “strategic necessity” for brands to reach consumers, according to Fred Killingsworth, founder of Hinge Global, a company that advises Amazon sellers.
He said premium brands will come up with a more coordinated plan to control distribution and brand reputation on Amazon. Some brands, he said, could use Amazon as an incubator to test markets. In any case, it’s simply become “no longer acceptable” to ignore Amazon as a primary sales channel, he said.
Amazon is the first place a majority of online shoppers go to search for products, and that will push more direct-to-consumer (DTC) brands that have traditionally avoided Amazon to sell on the site as well, according to John Ghiorso, the CEO of Orca Pacific, a consulting agency for Amazon sellers.
“I foresee a big focus on onboarding traditionally DTC brands to Amazon — shoppers are increasingly looking for DTC brands,” he said.
Still, Amazon remains a challenging place to sell for larger brands. Most recently, Nike ended its relationship with Amazon, largely due to couterfeit and reseller problems, according to the Wall Street Journal. Chopra at eTailz says large brands can now afford to sell online on their own, without relying on Amazon because third-party logistics providers offer fast shipping and storage. More importantly, these brands want to keep a direct relationship with customers, which is difficult on Amazon.
“Brands looking to increase the lifetime value of their online customers will want to own that relationship with the customer and will move from a transactional relationship with their customers on Amazon to owning the customer through their own distribution channels,” Chopra said.