There are certain milestones in an Amazon business’s lifecycle, one of the most thrilling of which is breaking $1 million in annual Amazon sales for the first time. However, that milestone can also become a plateau. Doing the basics well has brought you here, but to climb further, the basics will no longer suffice.
What does it take to grow an Amazon business from $1 million in annual sales to $5 million, or even $50 million? In short, what does it take toscale to the next level?
Kaspien has served over 4,000 brands in our lifetime and generated over $ 1 billion in retail sales. Along the way, we’ve learned a thing or two about successfully scaling brands on Amazon. In this post, we’ll highlight some of the most common obstacles to overcoming a sales plateau on Amazon.
Common Causes of an Amazon Sales Plateau
One of the most common reasons we see a brand’s sales plateau after a certain point is that they’ve spread themselves too thin. They work with too many tools and partners, each of which works in siloes. They may work with a Creative Services agency for photography and video, an advertising agency to run their Amazon marketing, a freelancer to write copy for their website, and a software company for their inventory forecasting.
As is often the case, brands reach this point gradually and over a long period. They hired specialist agencies and freelancers as individual needs came up. This strategy was cost-effective and practical, but only to a certain point. There comes a time in a brand’s lifecycle where having many small partners becomes a constraint instead of a boon.
Here are just a few of the issues that can be created by this model:
Communication Gaps and Delays
Multiple agencies or freelancers aren’t communicating, and instead projects are relayed by internal stakeholders. As a result, too much time is wasted on bringing new stakeholders up-to-speed, clarifying misunderstandings, and passing messages back and forth.
Growth Slows or Stagnates
Because there are communication issues and teams are siloed, your business units will not be able to coordinate to the degree needed to improve efficiencies. Inventory forecasting relies on accurate sales prediction from marketing. Amazon advertising is harmed by stock-outs. Website content and voice may differ from branding on other sales channels.
These issues impede growth. Imagine a rowing team where each member works without consideration of the rower in front or behind them. They quickly fall out of sync, slowing the boat and falling behind the competition. By consolidating supportive services under one unified partner, you position your team to work in synchronization, maximizing sales velocity.
Being Spread Thin Impedes Automation
Not only do siloed freelancers and agencies slow progress on initiatives, they also make it more difficult to automate different facets of the business. Automating processes effectively across a growing organization means having a shared source of truth and interconnected systems. When each partner has their own data and processes, effectively automating your operations, which is an essential part of scaling a business, is quite challenging.
The Costs Exceed Those of a Holistic Agency
One reason that brands typically hire specialists instead of a full-service partner as they grow is because of cost. However, there comes a time when you end up paying for the sum of specialists than you would for a single partner. This time comes earlier than one might expect by simply summing the numbers.
If you consider the fact that a single partner eliminates the issue of communication gaps, siloes, and automation obstacles, the single partner can actually accelerate growth even faster, further increasing the return-on-investment to the point that working with a single partner becomes more profitable than working with many specialists earlier than expected.
Case Study: Growing Lorex’s Amazon Sales by 521%
Let’s take a look at one of our partners who chose to work with Kaspien as their full-service Amazon agency. Lorex is an electronics brand known for their high-quality security systems. They partnered with Kaspien to transition their business away from Amazon Retail and start selling their products on Amazon themselves.
As their agency, we built new listings and enhanced existing listings, created A+ Content, an Amazon Store, and launched sponsored ads on Amazon. In the years since, we’ve grown their annual Amazon sales from thousands to millions.
Our Results
521% increase in total sales
13% average ACOS
$4MM+ lifetime Amazon ad sales
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Brands selling on Amazon can choose to sell wholesale to Amazon’s first-party seller division, Amazon Retail (1P).At first glance, the prospect of working directly with Amazon sounds ideal. They own the platform, so they’ll provide the most value. As is often the case, the reality is a bit different.
Too often, the vendor experience is frustrating one as Amazon makes unilateral decisions that go against the brand’s wishes. With a mammoth $490 billion GMV in 2020, $300 billion of which comes through the third-party seller marketplace, Amazon isn’t afraid to throw its weight around. It’s not an equal partnership.
Pricing, in particular, is a common pain point we hear frombrands selling through Vendor Central. Amazon Retail either drops their prices or even raises their prices against the brand’s wish. While Amazon is one making the decision, it’s the brand that suffers the consequences.
Why Does Amazon Retail Lower Pricing Against Vendor Wishes?
Amazon Enforces Pricing Parity
Amazon is committed to offering consumers the lowest price available, and it takes quick action to live up to that promise. If your product is offered for a lower price by another seller on Amazon or ecommerce site, Amazon Retail will drop their price to match, even if that means dropping below your MAP or MSRP.
This is an issue that can be largely avoided by integrating Amazon into your overall brand strategy, making sure that your brand and products are represented consistently across all sales channels. Doing this effectively requires a secure distribution network – if unauthorized sellers can easily obtain your product, it becomes far more difficult to enforce consistent pricing. If a rogue seller drops their price, Amazon Retail will follow suit.
Why Does Amazon Retail Increase Pricing Against Vendor Wishes?
Amazon is the Sole Seller
While Amazon Retail has earned a reputation for price slashing, there are times that it increases prices, even to the point of price gouging.
Amazon does this by taking advantage of a technicality: Offering the lowest price availabledoesn’t necessarily translate to the lowest price possible. When Amazon is the only seller in a listing, they sometimes take advantage of the situation and increaseprices to increase their margin. If the price is higher than MAP or MSRP but you’re the only one selling it, it’s still offered at the lowest price available.
Some brands are frustrated by Amazon’s unilateral decision making, especially because it is their brand that receives the brunt of shoppers’ frustration at higher prices.
How to Make Amazon Retail Stop Price Gouging
Brands who want Amazon Retail to lower their product price have limited power, but there is one way to take back control. Amazon Retail’s ability to raise prices is based on them be the sole seller. Brands can remove that power by partnering with a trusted distributor and third-party seller, ideally one that has Seller-Fulfilled Prime (SFP) so they can continue offering the same delivery speeds.
When Amazon Retail raises their prices and refuses to heed the brand’s request to lower them, the brand can ask their distributor to send a set amount of inventory to the third-party seller. The third-party seller will then list the product at the price that the brand desires, and Amazon Retail will be forced tofollow suit to uphold their promise.
In this model, the brand reclaims control of their pricing policy and the third-party seller enjoys sales from the limited purchase order. Of course, this strategy requires partnering with a trustworthy distributor and third-party seller. Without shared trust (perhaps reinforced by signed agreements), this strategy could cause new problems.
Additional Benefits of Using a Third-Party Seller while Selling via Vendor Central
In addition to restoring a brand’s control over their pricing, strategically partnering with a distributor and third-party seller has several other notable benefits.
It Protects Against Out of Stocks
If Amazon Retail runs out of stock at FBA, the third-party seller can step in to start fulfilling orders from their inventory. Some sellers can also integratedropship order management systems with a brand’s warehouse, so they can fulfill orders even if they do not have inventory at FBA.
As 2020 showed us, it’s best practice to have multiple fulfillment methods available, in the event that FBA experiences category restrictions, IPI increases, or other issues that jeopardize your ability to store and fulfill orders. Diversification is a proven risk-mitigation tactic, and that extends to ecommerce.
It Protects Against Amazon Retail Not Renewing their Purchase Order
Amazon Retail is not obligated to place new purchase orders, and they may decline to replenish inventory for a number of reasons. This notably occurred in 2019, when Amazon Retail stopped placing purchase orders with vendors who sold less than $10M annually on Amazon. Thousands of vendors were reportedly blindsided by the move, and while Amazon resumed placing purchase orders for many of them a week later, some vendors never received a new purchase order.
Partnering with a third-party seller while still using Vendor Centralprovides a safety net, allowing brands to continue selling on Amazon uninterrupted even if Amazon Retail stops buying their product.
It Protects Against Amazon Retail Dropping Prices
We mentioned earlier that Amazon Retail will slash prices to match those offered anywhere else on the internet. This is problematic for brands that struggle with rogue sellers and retail arbitrage. If an unauthorized seller lists a product for well below MAP, Amazon will also drop below MAP. This can harm brands’ relationships with their brick & mortar sellers and creates a risk of smaller purchase orders due to lower profits.
If a brand is partnered with a trusted third-party seller, they can stop selling to Amazon while Amazon Retail refuses to abide by MAP. Once Amazon Retail sells through inventory, the brand will reclaim control over their pricing, at least through their authorized sellers.
Partnering with a third-party seller doesn’t solve the unauthorized seller problem, though. Unauthorized sellers typically arise from leaks in the distribution network, when distributors sell inventory to anyone who comes asking. The best way to plug these holes is to sign new agreements with distributors that limit to whom theyare allowed to sell product.
Throughout this post, we keep returning to trust. Brands need to be able to trust their distributors and sellers to act in their best interest. That trust is built easiest when the partnership is mutually beneficial between parties that both wield power.
In the case of Amazon Retail, that’s rarely the case. Amazon is a $490 billion gorilla, and they make unilateral decisions that harm your brand if they think it will entice consumers.
While Amazon Retail may be too rich an opportunity to pass up now, it‘s far too great a risk to be overly-dependent on them. Seek complementary and supplementary ways to capture sales on Amazon, whether that’s through a third-party seller or equipping your brand to fulfill direct-to-consumer.
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We are proud to announce that Day Parting is now available in our Amazon campaign management software, AdManager. Day Parting enables Amazon advertisers to schedule pay-per-click (PPC) ads to runonly during the days and times that deliver the best results. The Day Parting feature also displays performance results for multiple key metrics broken out byday and time, helping guide users’ strategy.
AdManager is one of the only Amazon ad management applications available to offer Day Parting. Amazon’s native advertising console lacks the ability to segment performance metricsandschedule adsby time.
Through Day Parting, advertisers can grow sales while minimizing ACOS, maximizing their Amazon marketingprofitability. By displaying multiple metrics by day and time, users have the information they need to support various goals. For example, if focused on growing brand awareness, users can set ads to run during times when impressions are highest. If focused on reducing costs, users can run ads during the time that ACOS is lowest. Whatever your goals, Day Parting provides the data insights needed to achieve them.
Promising Early Results from Day Parting
Six weeks since implementing Day Parting for our partners’ Amazon advertising campaigns, ACoS has decreased by 40%! This translates to an additional $6 return on every ad dollar spent – a very material impact!
We expect AdManager to drive continual improvements as it constantly intakes and acts upon Day Parting data to refine optimizations.
Kaspien Delivers Results through AdManager
Day Parting is just the latest of ongoing enhancements to AdManager. As a tech-enabled marketplace optimization platform, Kaspien is a firm believer in continual iterations. The Amazon marketplace continues to evolve, and sellers’ tools must evolve with it to meet new challenges and seize new opportunities.
In 2020, Kaspien used AdManager to drive extraordinary results for our brand partners.
One of the first questions we hear asked about Day Parting is, “Why would I turn off ads? Even if the people that click the ad do not convert after clicking, the click still indicates interest. Maybe they’ll come back another day to purchase.Furthermore, the failure to convert may be attributed to poor targeting rather than time of day.”
We understand that viewpoint. There’s logic to it. But we created and strategically use Day Parting because empirical evidence – not hypotheticals – proves that Day Parting makes Amazon ads more effective. To briefly elaborate, here are three data-backed reasons to use Day Parting:
#1 – The data shows that clicks late at night or early in the morning produce fewer sales at a higher ACOS than clicks during business hours or in the early evening.
#2 – Second, more clicks without a purchase can ultimately reduce campaign relevancy and decrease performance over time.
#3 – Lastly, if a brand is having trouble keeping campaigns active all day due to budget constraints, it’s much more beneficial to run ads during times when shoppers are more likely to convert to maximize their ad dollars.
Each brand should assess the impact of Day Parting for themselves. Some may find they prefer to run ads without it. But based on what we’ve seen for our partners’ ad campaigns, we expect that most brands will enjoy better results when using Day Parting.
How AdManager Enhances Amazon Advertising Performance
In addition to Day Parting, AdManager offers many other competitive features for Amazon advertising.
Dynamic Bid Optimizations
Unlock the transformative power of tiered bid optimizations. Create custom bid management rules that can bid up or down daily at the keyword level based on any combination of performance metrics.
Search Term Optimization
AdManager automatically identifies and adds high-converting search terms as keywords to your campaign to ensure continued relevancy and sales. It also automatically identifies and negates poor-performing terms to minimize wasted ad spend.
Profitability Enhancing Budget Optimization
Make sure your most profitable campaigns are always running. AdManager lets you set custom rules that automatically increase daily budget for high-performing campaigns if they run low, so your most profitable campaigns never turn off.
Out of Budget Table
AdManager also includes an Out-of-Budget table, which shows you when campaigns ran out of budget, how often they run out of budget, and the ideal budget for each campaign.
Campaign-Agnostic Keyword Management
Save time and streamline campaign management using the centralized keywords table, which enables users to manage keywords across their entire portfolio in one place.
Automated “4 Campaign Build” Creation
Maximize data insights and improve performance using our proven “4 Campaign Build” architecture. When creating a new campaign, you can select our “4 Campaign Build” to automatically create three manual campaigns (one per match type) and one automatic campaign.
Try AdManager for Free for 30 Days
Try AdManager’s self-service option through a free 30-day trial, no strings attached. If you’d prefer to have Kaspien’s marketing experts manage your Amazon advertising, reach out to us here.
Sign Up for a Free Trial
Amazon is never idle, but after a global pandemic, the ecommerce leviathan is experiencing one of its most intense growth phases yet.
Ecommerce salesreached between 14% and21%penetration of all retail sales in 2020. US ecommerce sales grew to nearly $800 billion in 2020, accelerating ecommerce growth by over 2 years.
Amazon was a major winner in this ecommerce growth,reportingannual net sales of $386.1 billion in 2020.Amazon’s annual net sales grew 38% year-on-year, a massive figure for a company of Amazon’s size.
As the ecommerce titan grows, having a brand presence on Amazon is becoming less of an option and more of a necessity for brands who want to remain competitive.
Amazon’s Competitors Ride the 2020 Wave
Amazon’s fulfillment issues in late spring and early summer allowed competitors to secure a stronger foothold in the space, which doesn’t seem to be slowing down.Walmart, Target, Shopify, and more posted double-digit and triple-digit growth in 2020. Amazon still dwarfs all of its domestic ecommerce competitors, but 2021 may present the greatest challenge to its dominance seen in the last decade.
In a survey, Kaspien found that 43% of respondents ranked Target.com as the online marketplace that they are most interested in expanding to within the next 1-2 years, followed by Walmart at 41%.
Competitors’ success may have eroded Amazon’s market share in US ecommerce. According to Digital Commerce 360,Amazon’s market share diminished from 44% in 2019 to 31% in 2020. However, eMarketer reports contradicting numbers, estimating Amazon’s market share grew from 37% in 2019 to 39% in 2020.
Whatever the reality, Amazon’s subscription service retains a comfortable lead ahead of competitors’ subscription services. A January survey by PYMNTS shows that 64% of respondents have Prime memberships, while only 21% have Walmart+ memberships.
Amazon is irrefutably the dominant marketplace in the US, but the reduction in market share indicates that other online marketplaces are gaining steam.Brandswould be wise to plan for an omnichannel approach to ecommerce for the coming years.
Amazon Facing Antitrust Scrutiny
Even before the global pandemic, Amazon was facing increased scrutiny from regulatory bodies. On March 2, 2020, the SHOP SAFE Act was introduced to Congress and referred to the US House Committee on the Judiciary. The act would hold Amazon and other online marketplaces accountable for counterfeits sold on their platforms.
Jeff Bezos also testified before Congress in July of 2020, and Amazon submitted written answers to follow-up questions in September. In October, the committee published a 450-page report with their findings from a 16–month antitrust investigation recommending antitrust actions be taken. 2021 may see some of those actions introduced to Congress.
Jeff Bezos Passes the Reins
In addition to potential legislation, the year will also witness several major changes in Amazon leadership. Founder and CEO Jeff Bezos stated that he will step down from his role to become the Executive Chair in Q3 2021. He will be replaced by Andy Jassy, the CEO of Amazon Web Services (AWS). Jassy has been with Amazon since 1997.
Jeff Wilke, CEO of Amazon Worldwide Consumer, alsoannounced he would retire in Q1 2021. Wilke was replaced by Dave Clark, who has a background in operations. A third Jeff on Amazon’s senior leadership team announced his departure in February 2021. Jeff Blackburn, who served at Amazon for over 20 years, is leaving the company.
As reported by Geekwire, Blackburn’s and Wilke’s departures will enable new CEO Andy Jassy to reshape more of the Amazon leadership team.
Third-Party Seller Services Grow
These changes in senior leadership suggest that Amazon will shift its focus to expanding and improving its platform instead of growing its direct retail relationships with brands. Expanding its platform would increase its value proposition for third-party sellers and advertisers operating on its marketplace, which generated $300 billion of Amazon’s $490 billion GMV in 2020, according to Marketplace Pulse.
If this is the case, all but the largest brands will be expected to sell on Amazon as their own seller or through third-party sellers. This shift has been trending for some time, with third-party seller services growing 57% year-on-year in 2020.
Amazon also acquired a Shopify competitor called Selz in January 2021. Like Shopify, Selz serves as a central hub through which sellers can manage multiple ecommerce sales channels. Amazon’s acquisition of Selz, especially after Shopify’s stellar performance in 2020, demonstrates Amazon’s continued investment in enabling brands to represent themselves on the marketplace.
Amazon’s advertising revenue has been one of its fastest growing segments for the last several years. In just Q4 2020, ad revenue grew 64% year-on-year, reaching $7.95 billion! Amazon also continually expands its advertising capabilities, releasing new features and ad types to Seller Central in recent years.
Brand Acquirers Raise $3 Billion
Over $1 billion were invested in companies focused on buying and growing brands on Amazon in 2020. By March 2021, total funding in this space wasover $3 billion.Thrasio, Perch, and Heyday practically became household names in the ecommerce industry. Taliesen Hollywood, founder of Hahnbeck, told Digital Commerce 360 that brand acquirers typically pay 2.5 to 4.5 times a brand’s EBITDA.
Consolidation is a natural part of business lifecycle in emerging industries, and it seems Amazon has finally reached that stage. The impact of brand acquirers is yet to be seen. How many will be able to successfully grow brands? Will their immense funding translate into brands becoming share leaders? How many will flounder?
International Marketplaces
Amazon’s international net sales grew to $104 billion in 2020, up from $75 billion in 2019. Amazon currently has 19 active marketplaces, having launchedAmazon Netherlands and Amazon Sweden in 2020 and Amazon Poland in 2021.Latin America also drew much attention, growing ecommerce sales by 37% in 2020. However, the biggest winner in the region has been the online marketplaceMercadoLibre, according to Euromonitor.
Amazon advertising also saw strong growth in international marketplaces. In 2020, Kaspien drove strong year-on-year growth in advertising sales in multiple marketplaces, including:
US: 55% increase YOY
CA: 201% increase YOY
UK: 1,434% increase YOY
Winning Categories
Certain product categories saw particularly strong sales growth in 2020 as the global pandemic influenced buying decisions. Online grocery sales soared, with eMarketer reporting 2020 sales reached $89.22 billion, an increase of $30.86 billion.
Online grocery sales are expected to continue to climb, with estimates predicting online grocery sales will reach nearly $130 billion by 2023, accounting for nearly 10% of total grocery sales in the US.Euromonitorforecasts higher growth than eMarketer, predicting that food and drink ecommerce will expand by 8% in 2021.
Kaspien also saw other categories benefit from the wild year. In particular, Pet Supplies, Sports & Outdoors, and Toys & Games each grew substantially. All of these categories involve entertainment and recreation, suggesting shoppers looked for respite from an exhausting year.
Download the Complete State of Amazon Report
We’ve only scratched the surface. Download our State of Amazon: 2021 Report to learn about othersignificant changes in 2020, as well as insights into what 2021 will bring.
Expansion into Ecommerce has Accelerated
Before 2020, ecommerce had been steadily growing its share of all retail. But when the coronavirus hit and countries around the world issues stay-at-home orders,it forced consumers and businesses to turn to online sales channels in numbers never seen before. As a result, we’ve seen an acceleration in brand and consumer adoption of ecommerce.
Road Bumps Along the Way
But, 2020 also saw brands face many hurdleson online marketplaces. Amazon struggled to keep pace with the surge in purchases, and they had to restrict which types of products they would accept into their fulfillment centers for a time. Amazon’s first-party(1P) division, Amazon Retail, and third-party sellers (3Ps) alike struggled to remain in stock as supply lines locked down, manufacturing was interrupted, and consumer demand skyrocketed for products well outside of their typical peak season.
Charting a New Course
After the turbulence of 2020, many brands are reconsidering their approach to ecommerce. To help brands make an informed decision, we’ve put together a list of the key factors that brands should consider when deciding if they should work with an Amazon retailer (1P or a 3P) or transition to working with an Amazon agency.
Should You Work with an Amazon Retailer?
Now that we’ve covered the primary options, let’s dig into key factors for making a decision about working with an Amazon retailer, an Amazon agency, or transitioning from one to another.
What is an Amazon Retailer?
Starting from the top, when a brand partners with a retailer, the retailer buys product from the brand at wholesale prices, then sells it for retail prices on Amazon.
The brand’s profits are payment for their product, minus the cost of manufacturing. The retailer’s profit is the consumer’s payment for the product, minus the wholesale expenses and channel management costs, which includes things like shipping, storage, fulfillment, commission, and marketing fees.
When it comes to Amazon, brands that sell through a retailer can partner with Amazon directly (first-party or 1P) or with a third-party seller (3P). Learn about their key differences in our blog post, Amazon 1P vs 3P.
Many brands choose to sell through a retailer because it provides cash up front, and the brand doesn’t have to get involved in the hassle of actively managing an Amazon channel.
Pros of an Amazon Retailer
Let’s start with the pros for partnering with an Amazon retailer (1P or 3P):
Paid upfront via a retailer’s purchase order, which can be useful for funding manufacturing costs
Not responsible for managing consumer-facing sales channel (fewer infrastructure costs)
They handle online sales tax
They are already registered for international value-added taxes (VAT), making international expansion much faster
They provide the expertise and resources
Perhaps the simplest way to start selling on Amazon
Cons of an Amazon Retailer
Now for the potential cons of working with an Amazon retailer (1P or 3P):
Limited control over your brand’s representation online
Limited control over product pricing
Limited visibility into channel performance
It’s worth noting that some of the cons of working with a retailer can be mitigated by partnering with a trustworthy partner. If you’re interested in this business model but concerned about the cons, seek out a retailer that’s committed to building a healthy relationship with your brand.
Costs of an Amazon Retailer
As mentioned, in a retail model, the retailer pays the brand for their product. However, retailers may ask for various discounts from the brand so they can pay the numerous Amazon fees (commission, shipping fees, tiered storage fees, and fulfillment fees) while still having some margin left over to generate revenue for themselves.
Making a Decision
Work with an Amazon retailer if:
You want to focus on the manufacturing and brick and mortar side of your business, while they handle taking your products to market
You don’t want to be responsible for paying shipping, storage, fulfillment, and commission fees
Your business’s cashflow model relies on large purchase order payments
You want to expand sooner rather than later into foreign markets
Should You Work with an Amazon Agency?
If you’re not interested in starting with a retailer or you’re working with a retailer and want to take more ownership of your Amazon channel, you may consider working with an Amazon agency.
What Value does an Amazon Agency Add?
Now, let’s say a brand doesn’t want someone else representing them on Amazon; they want to sell their products themselves. That’s an increasingly popular decision, and one that we’ve seen more and more brands transition to in recent years.
However, there’s a challenge in representing yourself. Managing an Amazon channel requires three things that can be hard to come by:
Personnel: You need bodies dedicated to managing your Amazon channel. If you’re using existing personnel, what projects are you pulling them off of? If hiring new personnel, you need the budget for salaries and benefits.
Expertise: At over 25 years old now, Amazon is a mature marketplace that requires complete attention. With millions of sellers on the platform, you must enter the platform with a strong understanding of the landscape and strategies if you want to succeed.
Time: If you manage your brick-and-mortar relationships, do you have time to also manage your ecommerce relationships (and critically, keep the two in balance so that one relationship doesn’t sour the other)?
If you lack in any of the above, then you may need outside help to fill in the gaps. That’s where Amazon agencies come in.
What is an Amazon Agency?
Amazon agencies can typically offer services in two ways: complete Amazon management or selected services. The former means that they provide everything needed to run every aspect of your Amazon channel. The latter means they provide only a handful of services that you specifically need help with, such as managing your Amazon advertising campaigns, while you handle the rest.
Pros of an Amazon Agency
Pros for partnering with an Amazon agency:
More control over your brand’s representation online
More control over product pricing
Increased visibility into channel performance
Your profit margin may exceed that of a retail model
They provide the expertise and resources
Cons of an Amazon Agency
Cons for partnering with an Amazon agency:
You’re paying the agency instead of having a retailer pay you
You may be responsible for inventory and supply chain management (some agencies offer this service, but not all)
Since you are selling through your own Seller Account, you are responsible for collecting and remitting online sales taxes
You’re also responsible for VAT in international markets, slowing your ability to expand internationally
When determining if you’re willing to pay for an agency’s help, think of it as an investment. If you pick the right investment, it may set you back at the start, but soon, it will pay for itself and then some.
Costs of an Amazon Agency
In an agency model, the brand pays for all the Amazon fees themselves (commission, shipping, storage, fulfillment, marketing), but you have more margin to work with. Because the brand holds the inventory risk in an agency partnership, the agency fee can be significantly lower than the retailer’s margin. The agency then collects either a monthly retainer or a commission.
Making a Decision
Either start by working with an Amazon agency or transition to one if:
You want more control of your brand’s representation online
You want a greater share of product margin
You need additional personnel, expertise, time, or resources to effectively manage your Amazon channel
Your budget allows for you to pay a retainer or commission
Your business’s cashflow model can adapt to using revenue from end-consumer sales
Should You Sell Yourself (Direct to Consumer)?
If you want to represent your brand yourself on Amazon and you have the personnel, expertise, time, and resources to do so, then you don’t need to partner with a retailer or an agency.
This route is the end goal for many brands, but it has by far the most and greatest requirements. As such, we often see brands start in retail or agency partnerships, then transition toward selling themselves.
In this post, we’re focused on comparing working with a retailer to working with an agency, but you can learn more about a Direct-to-Consumer model in this blog post.
Amazon Retailer vs Amazon Agency: Which is Better?
The annoying but honest answer is that it depends.
Retail is generally the better choice for brands that need immediate cash flow to fund their manufacturing. Working with a retailer also simplifies domestic and international taxes, as brands do not need to deal with VAT or sales tax when selling online through a retailer; the retailer handles it for them. This also enables brands to expand into foreign markets quicker, since the legal infrastructure is already in place.
Agency is generally the better choice for manufacturers with tight margins, want larger margins, and/orwant more ownership over their brand’s presence in online marketplaces.
Service That Grows with You
Kaspien holds a unique position in brand services for online marketplaces, as we’re able to serve brands in both capacities: We can be a brand’s Amazon retailer, Amazon agency, or help them migrate from one to the other. Through our platform, brands can continue building upon the same foundation of data, products, services, and solutions, no matter how their ecommerce needs evolve.
We have a growing library of resources about Amazon services, including other blog posts, whitepapers, eBooks, podcasts, and more. Subscribe to our weekly blog to never miss a beat!
On September 8th, Amazon announced updates to its communications policy. The update clarifies what buyer-selling communication is permitted by Amazon’s policies, something that was previously ambiguous at best. The update is intended to reduce the number and improve the quality of emails Amazon shoppers receive in the interest of improving the Amazon buying experience.
Biggest Takeaways:
Sellers can ask buyers for product reviews and/or seller feedback (although you still cannot ask for a positive review, only an honest review)
Amazon clarified what message types, content, and formatting are not permitted
The policy update applies to all Amazon marketplaces
The updated policies go into effect on November 3, 2020
Communications Updates
Permitted Buyer-Seller Communications
Sellers are permitted to communicate with buyers for the following three reasons:
If an order cannot be shipped or if it will be delayed. This must be communicated via Seller Central using the Manage Orders feature.
If additional information is needed to complete a return or if the seller is offering a partial refund. This must be communicated via Seller Central using the Manage Orders feature.
Communicate with buyers proactively (communication initiated by the seller instead of the buyer) to:
Resolve an order fulfillment issue
Request additional information required to complete the order
Ask a return-related question
Send an invoice
Request product review and/or seller feedback
Schedule the delivery of a heavy or bulky item
Schedule a Home Services appointment
Verify a custom design
Any other reason where the contact is required for the buyer to receive their purchase
Proactive messages may be sent using email, Amazon’stemplates in Seller Central, third-party applications, or via API. These messages must be sent within 30 days of order completion, include the 17-digit order ID, and be in the buyer’s preferred language.Amazon retains the authority to modify subject lines as it deems necessary.
Amazon’s policy update states that sellers may not send the following message types to buyers:
Order or shipping confirmations
Messages that say only “Thank you” or that you are here to help if buyers have any problems
Marketing or promotional messaging, including coupons
Language that either incentivizes or persuades the buyer to submit positive product reviews or seller feedback, including by offering compensation, money, gift cards, free or discounted products, refunds, rebates or reimbursements, or future benefits
Language that requests removal or an update of an existing product review
Language that requests a product review only if they have had a positive experience with the product
A repeat request (per order) for a product review or seller feedback
Forbidden Message Features
Seller-buyer communications must not contain any of the following:
External links unless they are secure working links (https, not http) necessary for order completion or links to Amazon
Attachments except for product instructions, warranty information, or invoices
Logos, if they contain or display a link to your website
Link to opt-out of messaging
Sensitive content in images or text (e.g. bare skin, violence/gore, adult/offensive language)
Tracking pixels or images
Email addresses or telephone numbers
Images of purchased products as Amazon includes those on your behalf
Images that do not relate to your brand or company
Forbidden Message Styling
Likewise, the policy update also forbids seller communications from containing any of the following:
Overrides of Amazon’s default line height, font family, or font color
Fonts in more than three sizes
Message bodies that are centered or that otherwise override default text alignment settings
More than two line-breaks (spacing between paragraphs) in a row
Unsecure images (http instead of https)
Spelling errors or grammar issues
Compliance Required by November 3, 2020
Sellers that fail to comply with Amazon’s updated guidelines by November 3rd may face temporary restrictions in proactive seller-buyer communication or a suspension of their seller account.
Today, we’re thrilled to announce that we have rebranded from “etailz” to “Kaspien.”Our parent company, Trans World Entertainment, has also rebranded to Kaspien Holdings, consolidating the two brands into Kaspien.
Even more important than streamlining the corporate structure, this rebrand also reflects the next eraof our journey. Our company has been evolving ever since our founding in 2008. We grew from a niche third-party seller of eco-friendly products into a top FBA retailer, created proprietary software for ourinternal teamsthat are now SaaS products, and launched an agency division to manage brands’ marketplace channels. We were creating fantastic tools but realized that we were limiting their potential and efficacy by only leveraging them for internal needs.
When Kunal Chopra joined the company as our new CEO in September 2019, he brought a new vision, one that harnessed all the different components we had built, expanded them, and brought them together in a unified, cohesive system.
Guided by a strong executive team, we underwent a metamorphosis, evolving from a top Amazon third-party retailer to a robust platform of ecommerce services and software.Through the platform model, wenow provide leading services, software, and strategy for all aspects of an online business, regardless of what, where, or how a brand chooses to sell.
Why is etailz Rebranding?
In short, we outgrew our old name.
“Kaspien is in a different place in the market than we were 1 year ago, much less 10 years ago,” said CEO Kunal Chopra.“Today, there are thousands of third-party sellers, agencies, and software providers offering brand services for online marketplaces. It’s a fragmented market. As etailz, we were one of those fragments. As Kaspien, we are defragmenting the market, pulling together all the services, tools, data, and integrations brands need to succeed on ecommerce under one roof. We’re a one–stop shop.”
“By defragmenting the market, we enable brands to grow and evolve without having to change systems. Through Kaspien, brands can continue building upon the same strong foundation of insights, results, products, services, and committed relationships no matter how their ecommerce needs change,” Chopra said.
etailz’s name was synonymous with third-party retail, and after 12 years of experience, we’ve become exceptionally effective at it. Our success was built uponour software and strategies, and these tools have now become the core of our platform as we know it today. While we’re still a third-party retailer,it’s only one of many parts. As Kaspien, everything we’ve developed to drive our past success is now available inflexible models to suit your business’s needs.
Listen to our CEO, VP of HR, and Creative Director discuss our rebrand to Kaspien on our podcast.
What does Kaspien Mean?
The Name
The name “Kaspien” was inspired by the Caspian Sea, the largest inland sea in the world. Like many waterways, it’s a hub of commerce. There is also debate whether it’s a lake or a sea; it’s more than it appears to be, and so are we.
Unlike a traditional retailer, we operate in three sectors – as a retailer, agency, and a software provider – and we wanted a name that can grow with us in the future. Kaspien does this.
The Logo
The logo utilizes an abstract ‘K’ as a graphic element. The negative space subtly incorporates a forward pointing arrow, representing forward thinking, innovation, and leadership – traits that etailz was founded upon and Kaspien will continue to embody. The hexagon behind the ‘K’ is inspired bypatterns prevalent in nature due to the hexagon’s efficiency, from bees’ honeycombs to the Giant’s Causeway. Our value proposition is rooted in maximizing efficiency, and Kaspien’s logo is an homage to this.
The Future of Kaspien
We’re as committed as ever to being “partner obsessed” and providing the best possible service for our partners. That mission and promise will never change.
We’ll continue expanding our services and software through internal development, integrations, and partnerships, unlocking greater efficiencies and performance. It’s an exciting time at Kaspien, and our partners will reap the benefits.
We’re thankful for all that we have learned over the last 12 years and to the etailz name for getting us here. Now, we’re excited for our bright future – together – as Kaspien.
Never Miss a Beat with Kaspien
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Originally published in the Forbes Technology Council. Read the article here.
Despite its incredible growth and undeniable popularity with consumers, I’ve noticed that some brands are hesitant or even outright opposed to the idea of selling their products on Amazon. With major brands like Birkenstocks and Nike having pulled their products off Amazon, these brand owners have reason to feel even more justified in their feelings.
Truth be told, there are likely good reasons for Nike and Birkenstocks to have withdrawn from Amazon, but these brands are the exception to the norm (not to mention the fact that they already had established large and loyal followings before joining Amazon). However, in my experience as a general manager at Amazon and now CEO of a company that helps brands sell online, the overwhelming majority of brands I’ve worked with have seen tremendous benefits from expanding their brand onto Amazon.
So, today, I’m sharing a list of reasons your brand probably should begin selling on Amazon, even if you’re not over the moon about it.
1. If You Don’t, Someone Else Will
Let’s start with the risks of not taking your brand to Amazon. Amazon is an ungated marketplace, which means nearly anyone can create a seller account and begin selling products on the platform. Between retail arbitrage, counterfeits and unauthorized sellers acquiring inventory, your products are likely to end up on Amazon, even if you don’t take them there.
When someone else takes your products to Amazon, you don’t have the chance to dictate how your brand is represented, which puts your brand’s reputation online and offline at risk. They can present little or inaccurate information about your brand and products, use poor quality or misleading images, and provide poor customer service, all while your brand name is displayed front and center on the listing. While some consumers are familiar enough with Amazon to note the difference between brand and seller, many are not, and it’s your brand name they remember when they buy your product online.
By taking your brand to Amazon yourself, you retain control of your brand’s representation on the largest online marketplace in the world. That’s power you don’t want to relinquish.
2. Shoppers Are Already On Amazon
After that first point, it may feel like you’re being held hostage by Amazon’s ubiquity. To a degree, you are. But Amazon is so much more than that, and it would be a disservice to your brand to not recognize the enormous opportunity Amazon represents.
Now more than ever, consumers are using online marketplaces to purchase essential and discretionary goods. By the end of 2019, Amazon had over 112 million Prime members in the U.S.and over 150 million Prime members globally. By selling on Amazon, you tap into a massive and growing audience, increasing revenue and expanding your customer base.
3. Amazon Is Expected To Remain The E-Commerce Market Share Leader
That growth is expected to continue in 2020, even with the current pandemic. Although Walmart is making strong efforts to capture ecommerce market share, Amazon is indisputably the dominant market share leader. Even during this pandemic, Amazon is expected to not only retain its market share, but actually grow it by another 1%. If you want to expand your brand online, Amazon is the place to do it, and that’s unlikely to change any time soon.
4. Amazon Is Improving Brand Protection Services
Perhaps you’ve resisted selling on Amazon because you’re concerned about retaining brand control after joining the platform. Amazon has earned a reputation for not penalizing unauthorized sellers in the past, but that’s been gradually changing. In recent years, Amazon has introduced several programs designed to help brand owners and their registered agents maintain control, including Brand Registry, Brand Gating, the Transparency Program and Project Zero.
Amazon is also facing increased external pressure to address the issue of counterfeiters on its platform. The department of Homeland Security released a counterfeit report that advised the government to take action against counterfeits appearing on e-commerce platforms that threaten the health and safety of consumers and harm the economy. This report contributed to the progress of the SHOP SAFE Act, which, if passed, could hold online marketplaces responsible for counterfeits sold on its platform.
In short, Amazon is and will continue to improve services for brand control as external pressure mounts.
5. Diversification Makes You Resilient
If all of the above failed to convince you, then consider this final point: eMarketer recently revised its forecast for retail and e-commerce growth in 2020, with consumer spend in e-commerce expected to grow 18%, while spend in brick-and-mortar stores is expected to decrease 14%. The revised forecast indicates that Covid-19 has accelerated the long-anticipated uptick in e-commerce spending as more consumers turn to online shopping.
The change in consumer spend patterns also means that brands that sell in both brick-and-mortar stores and online have been better positioned to weather the economic hardship. Diversification of assets is a tried-and-true means to protect investments, and retail is no different. Expanding to other sales channels can help brands endure unexpected headwinds. Even if you don’t want to list your entire catalog on Amazon at the start, establishing at least some small foothold on the marketplace will keep the door open, should you ever need it in an emergency.
The Benefits Of Starting Late
While in many ways starting earlier is more advantageous, joining Amazon for the first time at this stage does have some benefits. Amazon offers more and better marketing and brand protection tools than ever before, and you have more ways to launch on the channel (1P, 3P, direct to consumer or with an agency). Even now, Amazon is still growing. There’s a lot of competition, but the opportunity for growth remains as high as ever.
Amazon advertising represents one of the most cost-effective tools to advertise products. Experienced sellers and marketers know that every opportunity you get to optimize your ad spend and keywords is a way to increase your bottom line. This means it’s extremelyimportant to manage your Amazon ads properly. Due to the time and complexity of ad management, many businesses outsource their Amazon advertising to a third-party, such as a marketing agency, contractor, or freelancer. The amount of third-party Amazon advertisers is growing, and the market is getting crowded. The large number of choices can be overwhelming for anyone, let alone a brand entering the Amazon advertising space for the first time.
When you’re paying someone to manage your ad campaigns, you should know if they’re worth their price. Unfortunately, too often, they’re not. They may be charging you hundreds of dollars per month when they only check on your campaigns monthly. That’s not okay.
The problem is, it can be hard for business leaders to assess their agency’s or contractor’s true performance if they’re not versed in Amazon advertising fundamentals. To help, we’ve put together this blog post to help you determine if your Amazon search marketer is worth their salt.
Watch the video to learn how to create high-performing Amazon Sponsored Product campaigns.
5Questions to Ask Your Potential Search Marketer
1) How Often will Bids, Budgets, and Search Terms be Optimized?
Is it every day, every week, or every month? Is it every six months? Frequency of optimizations is a critical consideration. Some folks are going to be affordable, but they may only log in to “optimize” your Amazon advertising campaigns once a month. The reality is that’s not optimization. The Amazon landscape fluctuates too greatly and too frequently to implement optimizations that rarely.
On the other hand, some may say that they will optimize your advertising campaigns every day. At that point, they may be over-responsive and over-managing. Amazon changes frequently, but it takes time to see what effect your previous optimizations are having.The sweet spot is somewhere between these two examples, in many cases being two to three times per week.
2) What Cadence will WeReceive Performance Reports?
Your Amazon advertising agency or freelancer should provide reports regularly. As with the frequency of optimizations, there’s a sweet spot. Checking reports too rarely can result in poor performance and missed opportunities. Conversely, checking reports too frequently can lead to unnecessary stress and micro-management. Optimizations take time to take effect, so your reports should be spaced far enough apart to provide a true picture of what your last optimizations did.
Performance reports are like your child’s report card. If you review their report card only once per quarter, it may be too late to implement the changes needed to bring the grade up from a D to an A. Likewise, if you review their report card every day, there won’t be enough of a difference to suggest what, if any, changes are needed.
To start, we recommend a monthly cadence for performance reports. This prevents overreactions, while still being frequent enough that you can make strategic adjustments.
3) How Do You Plan to Manage Budget and How Will We Hold You Accountable?
Your budget may be based on a percentage of sales, or you may have a $10,000/month marketing budget. How is your Amazon advertising agency going to manage and optimize your budget effectively? Are they using an ACoS target? Are they going to try to reduce costs as much as possible? Are they going to be targeting only sales? Your Amazon advertising agency should have well prepared answers backed by data for these questions.
One type of relationship to watch out for is pay-for-performance oriented relationships. While your sales may increase, you may be increasing yourad spend by an inordinate amount, diminishing efficiency and ROI.
4) How Much of Our Budget is Spent on Branded Keywords?
Are there any high-value keywords that you’d like your products to place higher on the SERP for? Is it a branded term, a competitor’s term, an industry-specific term, or a category-term? If so, you should discuss that with your potential Amazon advertising agency or contractor because those types of targeted keywords may have a higher cost or higher conversion rate.
It’s easy to spend more than 50% of your budget on branded terms, but that can inhibit your advertising campaigns’ ability to reach new shoppers. Ask your partnerhow they will manage and optimize between your branded terms and non-branded terms. Ultimately, you’re trying to find consumers who aren’t only searching for your brand because that’s how you reach new people and acquire more customers.
5) What OrganicSales Lift can be Attributed to Your Marketing Efforts?
When you’re paying someone for a service, you have a right to know what results you can reasonably expect from their work. Excellent Amazonad management products, used with reasonable effort, proper inventory, good positioning, and excellent logistics, should raise sales by 30%. Some people will claim they can go even higher than that. If they say they can increase organic sales by 35%-40%, thatI’s not too crazy, but if any agency or marketer says they can guarantee 50%, 60%, or 70% organic sales growth, you should be worried.
Here at Kaspien, we offer AdManager to help businesses optimize their Amazon advertising campaigns. If you want to use it yourself, SaaS is available. If you want us to manage your ad campaigns for you, we can do that too.
6 Telling Factors You Can Check On
Once you have hired an agency or freelance search marketer to manage your Amazon advertising campaigns (or if you already have one currently employed), you should continue to monitor their work. We recommend checking the following 6 factors as a way to assess how well they’re managing your advertising campaigns.
1) AreAll Campaigns Set to AutomaticTargeting?
If they are, that means your search marketer is not actively managing the campaign. They’re letting Amazon’s autopilot handle the work while they collect a paycheck from you, and your campaigns are missing significant optimization opportunities.
2) AreAutomaticCampaignsGreater than 20% of TotalSpend without any Search Termsbeing Added to Other Campaigns?
You should always be running both automatic and manual campaigns. However, if your automatic campaigns are generating significant parts of your spend, you should be worried because it indicates your manual campaigns are not being properly optimized.(One caveat to this is if it’s a new campaign. For new campaigns, automatic campaigns may account for the majority of spend while they build relevancy.)
3) DoAutomaticCampaigns Have Negated Search Terms?
Negating search terms in automatic campaigns after migrating them as keywords in manual campaigns is a matter of good hygiene. Negating search terms from automatic campaigns prevents them from competing with your manual campaigns. If your search marketer is not doing this, that should be cause for alarm. Not doing this is bad etiquette and muddies your metrics, making it harder to manage the given manual campaign, your specific ideal customer acquisition rate, and ideal cost-per-click.
4) AreSmall Groups of ProductsUtilizing the Majority of Spend?
If a majority of your spend is from a small list of high velocity products, then you’re missing opportunitiesfor your other products. Your search marketer should be attempting to spread your ad spend across your whole catalog, rather than focusing it on a small group.
5) AreBranded Keywords Accounting for the Majority of Spend?
Branded keywords accounting for a majority ad spend is a huge red flag because it indicates your campaigns are not targeting new shoppers. Consumers will never search for your specific brand if they have never interacted with it before. For example, a consumer might search for “dog toy” or “soft dog toy”, but never “ZippyPaws” unless they have interacted with “ZippyPaws” before. Spending your money on branded keywords to attract new customers is wasting money.
6) What areYourHighestPerformingKeywords?
If you have a high cost-per-click (CPC) but you’re winning the bid for your generic competitive keywords,you’re in good shape. It does make you a target for competitors, but it’s a good problem to have.
Find the Right Amazon Advertising Agency
Don’t let someone take advantage of your trust. If you’re paying someone, make sure you have mechanisms in place to hold them accountable. Ask prudent questions and check on your campaigns.
While you’re here, here are some other resources you can use to educate yourself on Amazon advertising:
Today, Amazonpublished their earnings report for the second quarter of 2020. Their earnings exceeded expectations, with Amazon reporting a revenue of $88.91B and a net sales increase of 40% compared to Q2 in 2019. Other notable results include:
Net income increased to $5.2B, doubling their net income from the second quarter of 2019
North American net sales were up 43% YoY, while international sales were up 38% YoY
Grocery delivery capacity grew by over 160% and online grocery sales tripled, YoY
Amazon’s guidance for Q3 anticipates slightly more modest growth, with net sales expected to increase between 24% and 33% YoY.
Amazon’s COVID-19 Efforts
In Q1, Amazon promised to spend $4B on COVID-related costs during Q2. In Amazon’s earnings report, CEO Jeff Bezos stated, “As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand.”
Bezos added that since March, Amazon has created over 175,000 jobs, 125,000 of which are planned to transition to full-time positions.
Amazon promised to invest an additional $2B in COVID-19 related costs during Q3. As noted by Venture Beat, Amazon does not wish to appear to benefit too much from the pandemic, even as their $5.2B quarterly profit marks the highest on record in their 26–year history.
Key Takeaways from Q2 for Sellers
By looking at where Amazon is experiencing the most consistent, strongest growth rates, we can see where Amazon is likely to continue investing in the future. This report marks yet another strong quarter for third-party seller growth and Amazon advertising.
Third-party seller sales yet again grew faster than Amazon’s first-party sales, indicating that Amazon is continuing to embrace the third-party approach to the marketplace. This makes sense, as holding inventory carries greater risks. By expanding the third-party network, Amazon reduces its inventory risk while still generating more revenue in the form of fees.
Those fees include advertising. Amazon’s “other” category by and large consists of their advertising business. Revenue grew 41%, making it yet again one of their fastest growing segments. It’s likely that Amazon will continue expanding their offerings and capabilities for their ad platform, making it an even more appealing tool for brands selling on its platform.
Amazon’s Q2 earnings report comes one day after Jeff Bezos testified before the US House Committee on the Judiciary. Amazon, along with Facebook, Google, and Apple, were brought before the Subcommittee on Antitrust, Commercial, and Administrative Law to answer questions for an antitrust case.
It did not appear to go well. Members of congress grilled Bezos about Amazon’s alleged practice of using third-party data to create copycat products, then undercut the brands selling on its platform. The same accusation was made regarding AWS, with members asking about allegations that Amazon stole third-party data to create competitor products, as well as identify and then target competitors’ customers.
Congress members also pressed Bezos to explain why sellers bear the burden and costs of combating counterfeiters instead of Amazon, implying that Amazon has taken too passive a role because Amazon still profits from sales even if the products are counterfeits.
Bezos’s answers seemed unsatisfactory for committee members. In many cases, he stated he could not remember the details or was unaware of the alleged events.
Mr. Cicilline shared the following story from an apparel company that compared Amazon’s first-party division, Amazon Retail, to a drug dealer:
“Amazon strings you along for a while because it feels so good to get that paycheck every week. And in the past, for a lack of a better term, we called it, ‘Amazon heroine’ because you just kept going, you had to get your next fix, your next check. And at the end of the day, you find out that this person, who was seemingly benefiting you, making you feel good, was just ultimately going to be your downfall.”
Bezos responded by saying that he “completely disagrees with that characterization.” However, the anecdote rang true for third-party retailers. It is not a rare occurrence for a brand to seek out partnering with trusted third-party retailers after having a similar adverse experience selling through Amazon Retail.
What the Antitrust Hearing Means for Brands on Amazon
The antitrust hearing could be a huge win for brands selling online. If Amazon is indeed exploiting brands selling on its platform through copycat tactics, actions taken as a result of this hearing could put a stop to it. Likewise, if the burden of combating counterfeiters is placed on Amazon, brands may not have to bear the costs.
Unfortunately, both of the above are big “ifs” and will take months or years to be acted upon. As Amazon’s Q2 earnings report shows, Amazon is and will remain the dominant marketplace in US ecommerce for the foreseeable future.
Start Selling on Amazon
Brands that wish to sell online will need an Amazon strategy if they wish to grow their online sales. If you’re wary of doing that, work with an experienced Amazon retailer like Kaspien who already has the infrastructure and safeguards in place to protect your brand.
With the unexpected onset of COVID-19, many brands and manufacturers faced a production standstill ranging from weeks to months, jeopardizing and even killing their businesses. The coronavirus restricted supply chains, exposed structural fragility, and revealed a severe lack of emergency resources. In short, many companies just weren’t prepared. Even now, many states are not yet back to business-as-usual.
The impact on supply chains and fulfillment was one of the most pervasive and damaging effects inflicted on businesses. To safeguard against this in the future, brands and sellers alike have been exploring new fulfillment options.
At Kaspien, we’ve spent the last 12 years working with brands of every level, size, location, and structure as a third-party retailer. During that time, we’ve created a robust fulfillment network. From a small processing area in the back of our corporate office to now utilizing 7 fulfillment centers across the United States, we’ve built an efficient and resilient fulfillment network that has protected our partners’ businesses.
In this post, we’ll outline some of the key benefits of and advice for expanding your fulfillment network.
3 Benefits of a Dynamic Fulfillment Network
1) Mitigates Geographic Risks
If we’ve learned anything over the past few years, it’s that the world is unpredictable. Our partners are in every corner of the country, and as such, there are many different environmental and situational obstacles that can impact product fulfillment.
Whether it’s wildfires, hurricanes, or a pandemic, any business is subject to interruption when catastrophes arise. The West Coast Port Strikes of 2015 was one of those situations for us; we didn’t see it coming, and the sudden inability to process imported goods through west coast ports certainly impacted our normal business functions, and many of our partners faced similar issues. Lead times lengthened and we faced out of stocks.
The port strikes showed us that we needed fulfillment centers on the east coast in order to protect our and our partners’ businesses. Now that we have fulfillment and processing centers around the country, including both coasts, we can minimize the impact of geographically constrained events.
2) Lead Time and Freight Cost Improvements
Many manufacturers are facing tighter margins these days, as well as an added sense of urgency to have shipments turned around to Amazon quickly. By diversifying and growing our fulfillment network, we’ve seen a favorable upswing in lead time and freight cost.
According to Kaspien’s Strategic Warehouse Director, Jeff Bernatz, “In 2020, we’ve seen a ~20% decrease in overall turnaround time at our warehouses, directly tied to the increase in available locations and available staff to handle the workload.”
We work with many manufacturers who do not have the capacity or expertise to complete product preparation in compliance with Amazon’s fulfillment center requirements. For them, shipping to one of our processing facilities is essential, and that could translate to longer lead times and higher shipping costs. But, because we have a large fulfillment network, there’s always a processing facility close by, no matter where our partners are shipping from in the US. As a result, our partners pay a lower freight cost and shorter lead times since they’re shipping shorter distances.
For brands seeking to partner with retailers and/or logistics providers, always ask about their fulfillment network. A larger network will position you to get better margins and run a more efficient sales channel.
3) Handle Higher Volumes and Scale
A large fulfillment channel always enables us and our partners to scale faster, pushing more products at a higher rate. “Since expanding to 7+ warehouses, total unit volume through our warehouses has increased ~15% vs the same time YTD period in 2019,” said Bernatz.
More locations and a higher staffing capacity have allowed us to process more orders in less time. With this added capacity, we have room to expand into previously infeasible programs, such as direct to consumer fulfillment, distribution, etc. It also eliminates the backlog we can sometimes see during peak sales seasons, such as Q4 and summer.
The Benefits will Outlast COVID-19
For many companies, this pandemic has highlighted the extraordinary value of a diversified fulfillment channel. However, all the aforementioned benefits of a large fulfillment network will continue even after the pandemic ends. Though the coronavirus may have prompted you to explore new fulfillment options, it’s worth continuing that research so you can position your brand to weather future storms and continuing growing.
We’re always happy to share our learnings from the past 12 years. If you want to learn more or discuss a partnership, get in touch through our contact form or schedule a call with one of our ecommerce experts.
Updated 9/1/2020: Walmart officially announced that Walmart Plus will become available to all members on September 15th.
What is Walmart+ (Walmart Plus)?
Walmart will be launching a new service in July called Walmart+, according to Recode.Walmart+ is a subscription-based service that will provide members access to unlimited same-day delivery for eligible items, discounts at Walmart gas stations, and early access to Walmart deals.
Walmart+ is set to launch in July for $98/year, roughly $20 less than Amazon Prime. The service is meant to rival Amazon Prime as Walmart continues expanding its ecommerce operations.Walmart has yet to clarify whether the service will launch nationally or in select regions to start.According to Recode, a Walmart+-branded credit card will also be introduced after launch.
What Does Walmart+ Signify?
Walmart+ is the latest move in Walmart’s efforts to challenge Amazon for market share in online retail.Earlier this year, Walmart announced Walmart Fulfillment Services (WFS), a Walmart owned and operated fulfillment network for goods sold on Walmart.com. Walmart Fulfillment Services offers many of the same benefits as Fulfillment by Amazon (FBA).
Walmart+ and Walmart Fulfillment Services make it clear that Walmart is taking advantage of Amazon’s successes and failures. They can see which services have proved most useful for online sellers and shoppers, and they are actively working to create comparable services for their own platform.
How Will This Affect Shoppers and Sellers?
Shoppers and sellers alike will benefit from thecompetition between Amazon and Walmart. Amazon Prime was largely unchallenged in the online marketplace space. With the introduction of Walmart+, the two services will vie for sellers’ and customers’ patronage,resulting in better features and deals.
How does Walmart.com Compare to Amazon?
Walmart has made excellent progress this year on their ecommerce platform. Along with Walmart Fulfillment Services and Walmart+, Walmart also offers brands better protection from counterfeiters and unauthorized sellers than Amazon.
Walmart is a gated marketplace, meaning that sellers must be approved before they can sell on the platform. Amazon, on the other hand, is an ungated marketplace, so anyone can create a seller account and begin selling. Amazon’s approach contributed to its staggering growth, but it also made it vulnerable to exploitation. Counterfeiters and rogue sellers have long plagued brands on the Amazon platform, and the problem has even received attention from the Department of Homeland Security.
Walmart also has the upper hand in theonline grocery business. Walmart+ will offer benefits for grocery purchases as well, helping defend Walmart’s position as Amazon works to take control of the grocery sector.
Despite theirprogress, Walmart still has a lot of catching up to do. Walmart’s paidmarketing services do not yet offer the same control as Amazon’s, resulting in lower ROI, nor do they offer the same breadth of services.
Sell on Walmart Sooner Rather Than Later
As Walmart continues building out its ecommerce platform, they are improving their ability to pull market share from Amazon. In their earnings report, Walmart shared that their ecommerce sales are up 37% year over year (partly due to the coronavirus).
Walmart is learning from Amazon’s history; brands should too. Establishing an early foothold on the ecommerce platform will position brands for long-term success.
Kaspien is a preferred solutions provider for the Walmart marketplace. If you’d like to discuss expanding your brand onto Walmart, reach out through ourcontact form.
Want to learn about selling on Walmart.com? Check out our free eBook!
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WFS: Walmart’s Gamble to Challenge Amazon FBA
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