Amazon 3rd-party sellers operate within a constantly changing environment. Not only do external market forces have an impact on their business, but Amazon’s constantly changing platform makes it especially important for 3rd-party sellers to monitor ongoing trends.
We don’t have to look very hard to find examples of changes that drastically impact 3rd-party sellers’ operations. Consider these recent changes from Amazon:
- Banning rank manipulation tactics, such as search-find-buy.
- Introducing the brand referral program to increase referrals from non-Amazon platforms.
- Changing deal structure, such as increasing Lightning deal duration from 6 hours to 12.
And, that’s just a sample of recent changes by Amazon, let alone the multitude of other global trends that could affect your FBA strategy. To be successful, brand owners need to observe what trends may impact their business and plan accordingly. Let’s dive into 5 major trends that today’s Amazon 3rd-party sellers need to be aware of.
1. Paid Advertising Is Becoming the Norm
More than a quarter of Amazon search results are paid advertisements, a trend that is only increasing.
It’s essential that Amazon 3rd-party sellers build competency in paid advertising. Sellers need to develop robust keyword strategies, understand metrics like advertising cost of sale (ACoS), plan around events like Prime Day, differentiate their strategy for new and mature products, and learn how advertising impacts their Amazon pricing strategy.
It’s not enough to just rely on a superior product or better price — without a firm grasp on the fundamentals of paid advertising on Amazon, customers might never see your product listing in the first place.
2. Fee Changes Can Make or Break a Business
With already tight margins and fierce competition, Amazon’s yearly fee changes have the potential to make or break certain businesses. The importance of Amazon’s fee changes won’t be lost on most sellers, but it’s possible that some aren’t scrutinizing Amazon’s fee-change schedule as closely as they should.
For example, it’s easy to see that the sharp increases in fees associated with fulfillment, long-term storage, and removal and disposal for large items makes it less appealing to move bulky, high cost, and slow-moving products. But typically, there’s more margin on these products to absorb those fee changes.
Conversely, even minuscule changes to small, low-margin, fast-moving items can make it impossible to compete.
Amazon 3rd-party sellers need to think beyond the absolute dollar value of changes and turn their attention to the downstream impacts of those changes on their margins, manufacturing, inventory, and overall business strategy.
A great place to start is with this year's fee increases. In 2022, Amazon 3rd-party sellers can expect to see:
- Higher fulfillment fees starting January 18th
- Higher small/light fees starting January 18th
- Higher removal/disposal fees, also starting January 18th
- Higher storage fees increasing February 1st
- Higher aged inventory surcharges starting May 15h
- An average increase of 4 percent across core fulfillment fee categories
Looking at these increases, straightaway we can see that slow-moving ASINs are going to be more painful to sell in 2022. Not only will storage fees and the aged inventory surcharge increase, but you'll also take a greater hit if you decide to cut your losses and remove those slow-moving products from your inventory.
3. Confidence in the Supply Chain is Waning
As a result of the COVID-19 pandemic, global supply chains have suffered dramatically. More and more consumers are making purchases online, but quarantines, social distancing, and other pandemic measures have made fulfillment difficult. Products that used to have a 90-day lead time might now have a 145-day lead. And with the increase in demand, freight costs have also skyrocketed. Forty-foot containers that used to cost a few thousand dollars can easily cost four or five times as much today.
There’s a broad expectation that these are temporary difficulties and challenges that our society will eventually overcome. What may last longer, however, is the realization that supply chains are fragile and that even a giant like Amazon can’t always run like clockwork.
It may be the case that lean operating principles will fall out of favor amongst ecommerce businesses. Instead, paying the cost associated with high inventory may become the norm in response to memories of pandemic-induced stockouts.
No matter how anxieties around the supply chain shake out, one this is for certain: Sellers that watch the market and base their decisions on data will be better prepared to adapt their supply chain practices and keep their business afloat. There are plenty of data sources out there for ecommerce stakeholders to keep an eye on, but we recommend that Amazon 3rd-party sellers start with the Freightos Baltic Index.
4. Inflation Must Be Taken Into Account Early
In November of 2021, inflation hit its highest point since 1982, with a whopping 6.8 percent.
Every seller needs to incorporate this factor into their price. Doing so early can give customers more time to get acclimated to the change. Rather than react to shrinking margins, sellers must proactively preserve or grow them. And while today’s inflation rate is significant, monitoring future inflation (or deflation as the case may be) and incorporating it into your pricing in advance is key to keeping your costs predictable.
5. More Aggregators Than Ever
Another recent development in the Amazon ecosystem is the explosion of brand aggregators — like D1 brands. These organizations purchase Amazon brands from owners looking for an exit from their entrepreneurial business.
They’re a relatively new phenomenon, with the earliest aggregators appearing on the scene only a few years ago. Since then, they’ve proliferated significantly. In fact, as of January 2022, Amazon brand aggregators have raised roughly $13.5 billion in cumulative capital. Compared to just six months before, that figure was a little over $6 billion.
This has a few implications for brand owners interested in exploring exit options. On the one hand, they have more opportunities to generate interest in their brand and get the best deal possible. On the other hand, more aggregators means owners need to be more thorough in their evaluation.
Some aggregators make the exit process seamless and are assured to have the funds they promised; others might have investors pull out midway or make the due diligence process needlessly complicated.
As a relatively new opportunity for Amazon 3rd-party sellers, many have questions about what aggregators are, what the exit process looks like, and what they can expect when it comes to making a deal for their brand. If you’re curious about the process of selling your Amazon FBA brand, we recommend reviewing our post, Your Ultimate Must-Know Advice Guide to Successfully Selling an Amazon Business.
And whether you’re ready to sell or not, feel free to reach out to the team at D1 Brands — we’re always happy to help Amazon 3rd-party sellers learn about their exit opportunities.