The Changing Amazon Seller

Amazon Marketplace first launched on Amazon.com in November 2000 and has since grown to be one of the largest e-commerce economies in the world. As Amazon grew in reach it was both enabled by the marketplace and enabling the marketplace to grow - initially the goal of the marketplace was to expand the catalog through a distributed effort, but have since evolved into a platform used by retailers and brands to reach millions of customers. Introduction of the Prime memberships in February 2005 and the Fulfillment by Amazon (FBA) service in September 2006 has further accelerated the marketplace.

When the Amazon marketplace started it was made up exclusively of resellers. Retailers with existing brick-and-mortar stores or e-commerce websites joined the marketplace to further expand their own reach. Those resellers had access to hundreds or even thousands of different brands thanks to relationships with distributors and manufacturers they have built over the years. Some of them relied exclusively on dropshipping too, a practice which allows a retailer to fulfill customer orders from the distributor warehouse instead of their own.

The infamous Amazon buy-box was designed to enable resellers on the platform. Since many of them had access to the same products amazon.com website had to be changed to accommodate that. The buy box picked the seller with the cheapest price for the same product thus creating a well-defined playing field. But this has also caused “race to the bottom” pricing as sellers lowered their price to beat competition. Many resellers are in a constant struggle trying to balance healthy inventory while keeping net margins healthy too.

Five years ago this started to drastically change. Unhappy with low margins and relentless competition sellers started to look for ways to differentiate. The solution for most of them was obvious - sell products without competition. Which means sell products you own. This realization pushed sellers into two directions: exclusive relationships with brands and creating their own brands. First establishes a seller as an exclusive distributor of the brand’s products on Amazon. Second is private label.

Amazon sellers with one main brand

To illustrate this we looked at the sellers with one brand representing half or more of their catalog. We found that in two years the number of sellers with one main brand has increased from 46% in 2016 to 58%. Resellers have hundreds of brands in their catalog, all representing a small percent of the overall catalog. Sellers who own brands on the other hand have one main brand. For this research we focused on the top 10,000 sellers as we believe that they represent the trends of the marketplace the best.

More and more sellers on the marketplace are focused. The rise of the importance of brand management and advertising is pushing this further still. A reseller with hundreds of brands can’t afford the resource to actively manage tens of thousands of listings as well a seller with one brand. Also a seller with hundreds of brands competing for the buy box with others will spend less on advertising. If at all. Finally there are also many brands who now sell as sellers, instead of selling to Amazon as a vendor or to dozens of sellers in wholesale.

Amazon sellers with 100 or less products for sale

To further validate this insight we also looked at the number of sellers with small catalogs - 100 items or less. We also found that the number of sellers with 100 or less products for sale has increased from 34% in 2016 to 42% in 2018. Sellers who own brands have a few dozen products in their catalog at best, while resellers would sometimes have millions.

Resellers are a dying breed. Data backs it up. Increasingly successful sellers are those who own brands or have exclusive relationships with brands.

Growing Prime membership base - now over 100 million strong worldwide - is passively pressuring sellers into offering Prime. Which, except for the new programs like Seller Fulfilled Prime and FBA OnSite, means using FBA for fulfillment. The passive pressure is there because a seller can choose to not to offer Prime, but that would mean few of the Prime members would buy from them. As the Amazon consumers collectively make a decision to buy-in to Prime the marketplace has to evolve.

Amazon sellers using FBA

FBA usage among top sellers has been rising as a result. In two years it increased from 53% in 2016 to 68% in 2018. This makes the marketplace more integrated into the overall Amazon experience, and is by all accounts what enables its flywheel effect.

The growing FBA use is also a result of growing participation from international sellers. More international sellers use FBA compared to the average of all sellers. The service has uniquely allowed them to offer products to the US consumer without the penalty of long shipping times. As far as consumers are concerned the business address of the seller is irrelevant as long as they use FBA.

Amazon sellers based in China

Among international sellers China makes up the biggest share. Their share of top sellers has grown from 19% in 2016 to 32% this year, based on amazon.co.uk data (because of limited data available on Amazon.com sellers the same analysis is not available). None of the sellers from China are reselling other brands - they are all pushing their own invented brands. Some of which are unfortunately counterfeit, a growing problem on Amazon.

But it is not only international sellers joining Amazon.com - domestic US sellers are joining international Amazon marketplaces too. Gone are the uncertainties of selling in expanding internationally, sellers who own brands are taking them to all Amazon markets, especially those in Europe. The Amazon marketplace is global, both in terms of participants and the markets it reaches. And thus in retail it was never this easy to sell internationally, but also the competition was never as fierce as it is today.

The evolution of the marketplace thanks Amazon’s growing reach and an increasing number of platform services in the form of FBA, advertising, and others has meant that the sellers then and now are very different. The changes are in what kind of products and the relationship with the brands they sell, how they handle fulfillment, and most recently where in the world they are located.

The Amazon seller has changed a lot since 2000. But the rate of change has accelerated in the past five years. Growing competition, international participation, and Prime membership is making sellers readjust their strategy. In the end, the biggest change is probably the increasing sophistication among the top sellers. A trait hard to quantify, but immediately obvious when talking to any of the twenty-thousand sellers who have reached over $1,000,000 in sales.

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Juozas "Joe" Kaziuk─Śnas

Founder of Marketplace Pulse, Joe wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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