Amazon Racing to Remove the Fulfillment Bottleneck
Amazon is struggling to accept some inventory shipments in time, which is causing products to sell out, leading to a drop in search rankings and quantity restrictions. The previously predictable inventory cycle with known restrictions and fees has become unpredictable.
Marketplace Was Amazon's Fastest Growing Business in Q2
For the first time, in the second quarter, Amazon’s fastest-growing business segment was the marketplace. Revenue from transaction and fulfillment fees was up by an all-time-high 53% in the quarter, indicating strong sales by the marketplace sellers.
Shopify Overtakes eBay
Shopify’s Gross Merchandise Volume (GMV) for the second quarter was $30.1 billion compared to eBay’s $27.1 billion. For the first time, Shopify processed more transaction volume than eBay. Shopify is not a marketplace directly comparable to eBay; however, like all e-commerce companies, they compete for the same customers.
Walmart Doubles Marketplace Size in a Year
Walmart marketplace has surpassed 50,000 sellers, doubling in size from July 2019. The partnership with Shopify, announced on June 15th, has accelerated its growth, bringing over 5,000 new sellers during the six weeks since.
Amazon Giving Up Advertising Revenue to Promote Its Brands
Amazon has increased the number of placements promoting its brands. Out of twelve ad spots on its website and six on its mobile app, three feature its private label products, for some searches. Amazon is giving up advertising revenue it would have made otherwise by selling ads to brands to promote products which profit is unlikely to offset the loss.
Amazon Advertising Flywheel
Amazon is spending on marketing to increase the number of shoppers, which attracts brands to buy more advertising, recouping most of Amazon’s marketing expenses. The company spent $4.8 billion on marketing-related expenses in the first quarter of 2020 but captured $3.9 in revenues from hosting advertising. That’s 81% of marketing expenses covered by advertising revenue.
The Number of Products on Amazon Is Infinite
Amazon's sales growth is unrelated to its catalog increase. No matter how many products Amazon adds to the catalog, there are only 48 items on the first page of search results. The outdated retail concept of the catalog size disregards the nuances of e-commerce, where shelf space has no cost and is thus endless.
Fulfillment is Amazon's Single Point of Failure
Recent months have highlighted the vulnerability that stems from Amazon’s fulfillment operations: Amazon warehouses and ships practically everything sold on Amazon. The same FBA moat that allows the company to provide a consistent shopping experience despite millions of sellers behind the scenes is a single point of failure. As it tries to protect that single point of failure, it needs increasingly strict quantity restrictions, high fees, and complex rules for sellers using FBA.
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