Prior to the COVID-19 pandemic, a majority of American consumers were dissatisfied with Amazon (NASDAQ:AMZN) and its impact on retail. Today, that has flipped, with 52% of consumers believing that Amazon is having a positive impact on the retail industry, according to Convey’s second annual consumer survey of more than 1,100 U.S. consumers.
In fact, the survey found that 42% of consumers buy the majority of their goods through Amazon. For smaller sellers, though, Amazon has been a double-edged sword. While its platform represents unparalleled opportunity for company growth, the urgency it has created for speedy delivery with its Prime offering puts many smaller sellers into a costly logistical bind.
The Convey survey bears out this paradox. While 95% of consumers feel it is important to support small businesses, 41% admit to making at least half of their purchases on Amazon. The reason? For the majority – 73% – it is the fast, free shipping. When compared to small businesses, 35% of consumers said lower item costs were a reason to shop Amazon. Another 23% cited shipping costs and 21% said longer shipping times at smaller sites were a concern.
“The pandemic-fueled shift to e-commerce forced shoppers to consider the delivery experience more than ever before – giving the advantage to Amazon and its fast, free delivery network while also exposing some weaknesses of the retail giant,” said Carson Krieg, co-founder and director of strategic partnerships at Convey. “Retailers have an opportunity to combat [Amazon] scale with agility focused on customer needs such as offering a wide variety of flexible fulfillment options, spotlighting the uniqueness of their brand, and providing proactive, transparent communication during shipping.”
Third-party sellers are left with few options. They can join Amazon’s platform and take advantage of its reach, but that could lead to increased shipping costs and other logistical concerns such as forward placement of inventory to meet speedy delivery promises. Or, they can not participate, which makes profitability more difficult in an Amazon-driven world.
Amazon is further tightening the screws on June 1 when it changes the paraments of its Amazon SFP (Seller Fulfilled Prime) program. The program allows Prime sellers to fulfill their own orders, but as of that date, sellers will be required to meet the more stringent one- and two-day delivery requirements set by Prime.
For many third-party sellers, the prospects of meeting these demands are daunting, which is why some are considering alternative business options.
“Every e-commerce company eventually becomes a logistics company,” Chris Bell, CEO of Perch, told Modern Shipper. “[People] only care about getting the product, not how it gets there.”
Perch is an e-commerce company that specializes in acquiring Amazon FBA (Fulfilment by Amazon) businesses and helping them expand their operations through leveraging its scale in warehousing and logistics to reduce costs. Bell previously worked with Wayfair (NYSE: W), helping build that online brand’s world-class delivery network.
Bell said Perch’s approach is to help build up the brands and advance them out of the $2 million to $30 million revenue range through the use of its technology to improve inventory, optimize advertising and reduce logistics costs.
“We can optimize hundreds of small brands the same way a large CPG (consumer packaged goods) company can optimize a few brands,” he said, noting that this adds liquidity to the business.
The small business owner is mostly focused on revenue and [driving customer loyalty] as they should be. We often find they are very heavy on inventory and there is opportunity to drive savings [with suppliers] through improved forecasting and planning.”
Chris Bill, CEO of Perch
“They are typically bootstrapped … so it’s a chance to monetize their hard work,” Bell added.
Bell said that for many of the brands Perch acquires, the greatest opportunity is in the supply chain.
“The small business owner is mostly focused on revenue and [driving customer loyalty] as they should be,” he said. “We often find they are very heavy on inventory and there is opportunity to drive savings [with suppliers] through improved forecasting and planning.”
There is no typical company Perch is acquiring, although they all have “high-quality products.” In some cases, the owners simply want to sell the business, while in other cases, the business may be cash-intensive and continued funding is difficult. Bell also sees situations in which the owner has funded the business through loans and those loans are coming due. Sometimes it’s just circumstance.
“People run into unexpected success and they realize they just don’t want it,” Bell said. “We’ve had many sellers that have said they just don’t like hiring and managing people. They just liked making and selling products.”
For these sellers, the issues that have hampered the large brands have affected them as well.
“The global supply chain is on fire,” Bell said. “It’s a catastrophe out there. There are container shortages in China and airfreight is through the roof. And even domestically, we have a multistep supply chain because Amazon has a limit on how much inventory it will hold, but it makes sense to sometimes order more.”
Bell, though, had nothing negative to say about Amazon and its demands, calling the company a “great supply chain innovator.”
“Everybody loves to hate on Amazon, but in general, nobody can touch Amazon’s fulfillment costs [with] the one- to two-day delivery guarantees, and Amazon doesn’t charge forwarding fees. And their actual fulfillment costs are better than any 3PL I’ve seen,” he said.
Some of Perch’s brands sell across many marketplaces, including Walmart (NYSE: WMT), Shopify (NYSE: SHOP) and others, but when compared to Amazon, it often costs the seller more because more inventory needs to be positioned around the country. That is where companies like Perch can assist smaller brands. Bell said the firm leverages relationships with global freight forwarders and warehouse providers to ensure the right amount of product is positioned properly, reducing overall inventory and shipping costs.
Bell offered a few tips of advice to sellers on how to improve their logistics process. First, when ordering goods or materials from China, try to ship full containers whenever possible. Second, manage inventory properly so that you never run out of stock but maintain minimal levels of capital spend.
When it comes to dealing with suppliers, Bell advised to not shy away from pushing back on terms to reach a better deal and pay close attention to your supply chain costs. He called those the “hidden killers” of a business.
Click for more Modern Shipper articles by Brian Straight.
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