Throughout 2019, Amazon has made concerted efforts to acknowledge the contributions of its third-party sellers, who CEO Jeff Bezos noted are “kicking [Amazon’s] first-party butt” in his 2018 shareholder letter.
Earlier this month, Amazon announced a new program to help small- and medium-sized businesses (SMBs) build their brands and grow online sales through seminars, webinars and community college courses. By its own count, the platform has released more than 150 tools and services targeting SMBs this year alone, which is part of a $15 billion investment.
And later this month, Amazon will announce the winners of its first-ever Small Business Spotlight Awards, including Small Business of the Year, Woman-Owned Small Business of the Year and Small Business Owner Under 30 of the Year.
In the words of Nicholas Denissen, Amazon’s vice president of small business, “Ultimately, our success depends on their success.”
SMBs are indeed important to Amazon: They sold 58% of its physical gross merchandise in 2018. That, according to Amazon, translates to more than 4,000 items per minute on average.
That’s a lot of proverbial widgets. But, sellers say, this immense opportunity comes with immense—and ever-increasing—competition from new sellers, similar products and even Amazon itself.
Becoming a third-party seller is easy (and profitable for Amazon)
According to ecommerce intelligence platform Marketplace Pulse, more than one million sellers have joined Amazon’s marketplace so far this year. That puts it on track to finish 2019 with more than 1.2 million new merchants.
The influx of Amazon sellers is in part because of so-called Amazon gurus, who use videos and blog posts to tout get-rich-quick-on-Amazon courses.
“It’s all bullshit—most of them don’t actually sell on Amazon, but they talk a good enough game to sell the dream to others, and they make their money pitching the fact that you can make money selling on Amazon,” said John Frigo, who sells home goods and gadgets on Amazon.
“Most of the people they bring in wind up buying an oversold, oversaturated product [and] wasting a few hundred or thousand dollars on marketing before eventually liquidating their inventory and throwing it all away.”
Amazon, however, is in all likelihood perfectly happy adding sellers, because more sellers mean more fees: Amazon makes $39.99 a month for every professional seller account. On top of that, it charges a Fulfilled By Amazon (FBA) fee for every product it ships on behalf of a seller, according to Deneiro Bartolini, who sells products on Amazon in categories like kitchenware, baby and mobile accessories.
Amazon said it has no plans to cap the number of sellers in its marketplace as it strives to offer the best prices, selection and convenience.
“Nearly 200,000 businesses worldwide surpassed $100,000 of sales in our stores last year, and we estimate these sellers have created more than 1.6 million jobs,” an Amazon spokesperson added.
Gartner analyst Christopher Ross agreed Amazon has lowered the barrier to entry for individual online sales.
“In many ways, this isn’t really any different than seeing the same products available at different retailers at different price points, but now the scale is much larger given the larger volume of merchants,” he added.
The sincerest form of flattery?
A new report from Amazon product research platform Jungle Scout found that retailers as diverse as Bass Pro Shops, Kmart, Lord & Taylor, Saks 5th Avenue and Sears source apparel from the same Bangladesh factory, Norp Knit Industries.
What’s more, it found countless other brands in sectors like consumer electronics, beauty and toys share manufacturers in countries including China, India and Taiwan even though the goods they sell sometimes come with vastly different price points for the end consumer.
In our own interviews with half a dozen Amazon sellers, Adweek previously reported the practice of factory sharing is common among the more than one million independent merchants who peddle their wares on the Amazon Marketplace. They frequently source these goods from China, often specifically the Chinese ecommerce conglomerate Alibaba which, like Amazon product research platform Jungle Scout, helps them find manufacturers.
“[The] vast majority of [Amazon sellers] are not manufacturing unique products but ordering the same handful of things from Alibaba supplier catalogs, which leads to 500 of the same tree hammocks being sold,” Frigo said.
Jonathan Weber, another third-party seller focused on outdoor equipment and office supplies, agreed that many goods on Amazon come from third-party sellers who rebrand existing products under their own names and otherwise provide little to no modifications.
“You may see a dozen products under different brands selling literally the same thing, sometimes even using the same stock photography,” he added.
Amazon called this a common practice standard across the retail industry. It also said that when multiple sellers offer the same product, they are consolidated into a single listing and sellers compete for the Buy Box for said product.
However, in searches for “manual coffee grinder” and “tree hammock,” sellers pointed out multiple examples of nearly identical products with different names.
Part of the reason there are so many sellers peddling the same products from the same factories is because of that low barrier to entry.
“Anyone with a few hundred bucks to maybe $3,000 can attempt to start a business or roll out a product,” Weber said.
Winning at Amazon has gotten tougher
But, sellers said, this doesn’t necessarily yield the best merchant or customer experience.
While acknowledging there was a point when third-party sellers helped Amazon expand its catalog, Frigo noted, “I will say it’s annoying as a [shopper] to have to look through pages of the same product to find something unique.”
And, as more merchants cannibalize each other’s sales on Amazon, the situation ultimately devolves into a race to the bottom on price until most go out of business, Weber said.
“It really comes down to who’s the best marketer or who has the most money to dump into [pay-per-click marketing] and product giveaways,” Frigo added.
Sellers also have to do a lot more research now, using tools such as Jungle Scout to determine best seller rank (BSR), or roughly how many units of a given product will sell per month, before deciding what to offer, Frigo said.
“There used to be a running joke you could buy 25-cent oil diffusers from China and sell them on Amazon for $25, and almost every product was like that. These days, it’s a much different game,” Frigo said. “It’s much more important to build a brand, stay within a niche. It’s very difficult to make money these days just buying random stuff [and] trying to resell it.”
Using those manual coffee grinders as an example, Frigo said sellers will sometimes distinguish products by changing a feature like a knob, adding accessories like a measuring spoon or packaging the product in a velvet bag.
“A good private label product should be an improvement over the existing options, not merely a copy—but, unfortunately, any legitimately improved [product] on Amazon will soon be followed by a slew of copycats,” Weber said. “That’s just the nature of the Marketplace, and natural selection will determine which products remain and which go under in the end. This process works well for Amazon, however, since the Marketplace always wins.”
Brands still have power
Amazon seller Dave Hamrick, who published the findings from Jungle Scout, said it’s a good reminder that what differentiates products—even from the same manufacturer—is the experience a consumer has in buying and owning it.
Amazon sellers can struggle with this because the ecommerce platform controls so much of that experience. Hamrick noted that sellers can distinguish themselves with high-quality packaging, as well as through informative product listings and friendly customer service.
“In a related dynamic, your grocery store brand salsa may be made in the same factory, and maybe even be essentially the same recipe, as a name brand salsa, but is sold at a discount because it lacks the brand power,” Ross said. “Same source, essentially similar products, different brands and go-to-market strategies.”
But, outside Amazon, Ross said the fact so many brands and retailers share manufacturers raises two points that are seemingly at odds, but are actually two sides of the same coin.
“On the one hand, it demonstrates that brand does have power. The ability to charge a premium for the same product made in the same factory would argue that consumers do see value in brand,” he said.
“On the other hand, it should be a caution that in situations where manufacturing is shared or a business doesn’t have a strong brand, price, selection, experience and other factors, [it] can easily tip consumers to other options.”