Former Amazon CEO Jeff Bezos’ trip into space, whether you were a fan of it or not, perfectly summed up his ex-company’s year. Buoyed by incredible e-commerce growth, the massive marketplace is strapped to a rocket and headed for the stratosphere, on pace once again to set record revenue figures.
Though that’s nothing new for Amazon, it’s undeniably impressive.
“In 2019, Amazon’s revenue was [almost] $300 billion. And then in 2020, basically, it grew to almost $400 billion,” said Yoni Mazor, co-founder and chief growth officer at Getida, a company that works with Fulfillment by Amazon (FBA) sellers to provide auditing and reimbursement services. “So for a company at the scale of $300 billion to grow 25% in one year — it’s just ballistic.”
As the largest online marketplace in the world, Amazon (NASDAQ: AMZN) has quite a bit of sway when it comes to e-commerce, and that’s never been more true than in 2021, with U.S. retail e-commerce sales topping $450 billion — led, of course, by Amazon.
“Amazon is … it’s everything,” Mazor told Modern Shipper. “I mean, this is their marketplace, this is their house, this is their rules.”
So with 2022 knocking on the door, Modern Shipper is taking a look back at Amazon’s year and what it says about the state of e-commerce — as well as where it’s headed.
The biggest e-commerce story of 2021 has been, without a doubt, the massive volume of products changing hands through online channels. U.S. e-commerce sales have grown an estimated 16% since the start of this year, and total U.S. e-commerce sales are projected to top $1 trillion for the first time ever in 2022. Much of that value passed (and will pass) through Amazon’s hands.
“People and consumers were stuck at home. They can’t really go out — they’re in lockdowns. So Amazon and e-commerce were the superheroes that were able to fulfill their needs,” Mazor said.
But seeing Amazon’s grip on e-commerce tighten, other companies large and small have increasingly turned to digital channels. Take, for example, Walmart (NYSE: WMT); after exploding in 2020 during the first year of the pandemic, the company’s digital sales in Q3 2021 still managed to top Q3 2020 by 8%.
Watch: Inside story of an Amazon seller
But SMBs are getting in on the action too. According to a December Sendlane survey of SMBs, 92% of respondents said their e-commerce sales grew in 2021, with 21% reporting that sales grew by 40% or more. Another 91% said that their e-commerce profits grew this year, and similarly, 90% saw their site traffic increase by at least 10%.
But that growth hasn’t come without some hurdles. According to Mazor, Amazon has faced “tremendous challenges” maintaining inventory and supply — and if the largest online retailer in the world is having trouble keeping products stocked, you can bet that SMBs are struggling too.
The NRF reported in June that 97% of its approximately 18,000 member companies, which range from large corporations to mom-and-pop shops, experienced inventory shortages as they tried to keep up with the huge influx of digital sales. And seven in 10 retailers said that products are being delayed two to three weeks longer than normal.
So while e-commerce volume has increased across the board for retailers of all sizes, it’s also causing headaches when it comes to stocking inventory, whether you’re a massive company like Amazon or an independent seller.
A clear leader in the e-commerce space, Amazon, with its nationwide network of thousands of warehouses, is also a bellwether when it comes to fulfillment.
Sellers on Amazon typically have two fulfillment options: either they can run their own warehouses and fulfill orders as they come in or they can ship inventory to Amazon and let FBA handle fulfillment and distribution. But when demand rose during the pandemic, FBA began to limit what third-party sellers could ship to Amazon.
For a few weeks, shipments were limited to products in PPE categories, like masks, but despite the temporary limitations, Amazon continued to maintain some restrictions even after opening FBA back up. For example, sellers that wanted to sell new products using FBA could only ship a limited quantity, which helped Amazon keep its marketplace stocked with products that were already in demand and in turn drove its growth in 2021.
Amazon’s sway over its sellers represents a larger e-commerce trend — larger companies’ domination of fulfillment. Mazor points to Walmart Fulfillment Services, Walmart’s answer to FBA, as the biggest indicator that other large companies want to get into fulfillment.
“That’s basically a copy/paste of what Amazon has done with FBA,” he said.
But it’s no small task. Amazon has hired hundreds of thousands of workers for its fulfillment centers and has been building those facilities for years in a bid to create a nationwide network of warehouses to be opened up to third-party sellers. Now it has more than 2 million U.S. sellers and 6 million worldwide, but only the largest retailers are able to handle that kind of volume.
“It’s a lot of work. It’s real estate, it’s labor, it’s technology, it’s manpower, it’s know-how, it’s liabilities if you take other people’s inventory,” Mazor emphasized, pointing out that marketplaces as large as eBay and Groupon faced similar problems. “The only exception to that is Walmart. … But compared to where Amazon is today, it’s not even a drop in the bucket. It’s like a drop in the ocean.”
However, as brands become more and more reliant on fulfillment capabilities, there could be more companies entering the playing field. For example, according to Mazor, Macy’s is planning on opening its own marketplace for third-party sellers leveraging microdistribution centers in its retail locations across the country.
“If that goes well, it’ll be interesting to see if they’re going to be pushed to adapt the model of opening up their fulfillment centers,” Mazor said. “They have a good spread around the country with all these regional and local malls.”
For as huge as Amazon is, the marketplace struggled with sourcing its products in 2021, a trend that’s trickled down into the entire e-commerce space. As has been the case for many U.S. retailers, the main sourcing pain points for Amazon are in China and Southeast Asia, where supply chain disruptions have thrown a wrench in its ability to get a steady supply. That’s hurting smaller sellers on the platform.
“The whole model of on-time supply on a global level worked great until the pandemic hit. And now it’s not so certain anymore,” Mazor explained. “The third-party sellers, many of whom source from Asia, are struggling hard. They were very nervous. The cost to source increased tremendously, and they were not able to get as much supply as they wanted to. It’s just a huge challenge all across Amazon.”
Of course, it isn’t just Amazon that faced this issue. Retailers selling everything from shoes to laptops have had a difficult time stocking their shelves, so much so that for the first time in history, Black Friday and Cyber Monday sales were lower than the year before.
“There wasn’t as much supply as there would have been if it wasn’t for all these challenges and consumers were able to shop more,” Mazor said. “In other words, many retailers got stocked out. They were able to sell maybe 10,000 units, but they only had 5,000 units.”
With retailers struggling to bring in products from overseas, Mazor thinks that they could instead begin turning toward home and manufacturing items domestically.
“If not domestic, then regional,” he said. “I know for a fact that a lot of [third-party sellers] are pushing towards sourcing products domestically here in the U.S. or Mexico or Central America. They’re talking to factories there. They are basically giving them the know-how to customize and create the product that they need and sourcing from there.”
Mazor thinks large companies will follow suit, moving at least some of their sourcing operations to the U.S. He compared the model to the U.S.’ oil supply chain, which is mostly situated abroad but has some domestic touch points to hedge against any supply chain disruptions. And while sourcing domestically is typically more expensive at face value, Mazor believes it’s more cost-effective in the long term because it can help retailers avoid disasters like the Suez Canal blockage in the spring.
“You have to be able to create a global supply chain that is less reliant on geography, meaning you have to be able to create a reliable infrastructure close by, at some degree, as a backup. You might still have China and Asia source the bulk of it, but you’re always going to invest in other infrastructures,” he explained.
The impact of China
As e-commerce becomes increasingly global, it’s no surprise that sellers from the largest country in the world are dominating the largest online marketplace in the world.
“Amazon has in the past decade really encouraged Chinese factories to learn how the platform works and given them direct access to the consumers, which is a big revelation for the factories,” Mazor told Modern Shipper. “So they have the muscle and capacity to provide an almost endless supply of a variety of goods, all the time, with ultra-competitive prices.”
That’s great for buyers because it translates to lower prices. But Amazon third-party sellers in the U.S. and elsewhere are being cut out of the loop by Chinese factories that beat them on capacity and price. They’re even losing out when it comes to product exposure.
“You’re not gonna see Nike gloves or socks necessarily coming up in the top of the search results organically on Amazon because it’s been dominated by all these factories who have lots of reviews on their listings,” Mazor explained. “And they just cracked the code.”
The gains of Chinese sellers on Amazon mirror the larger trend of China catching up to the U.S. when it comes to e-commerce sales. It’s been reported that this year, China will become the first country in the world at any point in history to have e-commerce sales comprise more than half of its total sales.
And in February, the International Trade Association reported that more than half of the world’s e-commerce transactions took place in China in 2020. It also estimated that the Chinese e-commerce market in 2021 will be larger than those of the U.S., U.K., Japan, Germany and France — combined.
Just as third-party Chinese sellers are dominating Amazon, Chinese companies are putting the global e-commerce market in a stranglehold. It’s just another parallel between Amazon and the broader e-commerce market, and we should continue to use the massive marketplace as an indicator going forward.
“Amazon is, when it comes to e-commerce, definitely the barometer of where things are at right now,” said Mazor, “and where they should be going.”