Should You Sell on Amazon? Part One

Now that we’ve all survived Prime Day let’s dive into the question of whether Amazon is the right place for your brand. Although this is for companies that haven’t put their brand on Amazon, it’s a question any brand owner should always be asking themselves.

If you’re an established brand, there is a pretty good chance you’re already on Amazon as it is very hard to resist the site that accounts for more than 40% of all the e-commerce sales on the internet! For those big brands that are not on Amazon, it’s good to know some can make that hard decision. For luxury brands, it seems to be an easy no, but for premium brands in the outdoor space, too many have said yes. If you’re a new or emerging brand, you should not be selling on Amazon and it’s questionable for the established brands.

First, you must give Amazon credit for building the most powerful e-commerce platform in the world and the decision to sell to Amazon might seem simple; it’s where 200 million Prime members hang out, but if you’re building a brand, it is a decision not to be taken lightly. If it was Walmart (who’s in second place with a distant 7% of total e-commerce sales) the decision not to sell to them would be a lot easier, right? Amazon does not have as much negative baggage to carry with them and brings a much stronger sales pitch to consider.

There are certainly plenty of businesses where the decision is a simple yes – where the concept of brand is not important. There are also those brands that were started to only sell on Amazon. But for those that are trying to build a brand, one that will be sold in multiple channels and stand the test of time, deciding whether to sell on Amazon is a huge decision.

Before any decision is made, you need to understand the playing field and the options. The first question is do you want your brand to appear on Amazon at all because selling on Amazon can take on different forms and has an impact on many other distribution decisions with other retailers.

Amazon is a ‘marketplace’ as well as a retailer and as a marketplace, anyone can sell there. This means if you decide that you do not want your products on Amazon, you need to control all your wholesale accounts to prevent them from selling your products on Amazon too.  We’ll discuss how to do that in another post.

Here are the two pathways to selling on Amazon:

1P, or First Party. 1P is when Amazon buys from you and owns the inventory. This is an invite only option and not going to happen unless you have the hottest new brand in the world. Amazon generally want to see performance (or potential) of at least $10 million in annual sales on Amazon to even be considered for 1P.

o   1p Vendors get access to Vendor Central where they still play a very active roll in the business with maintaining product info, review sales performance, and more. Like with other large retailers, vendors will negotiate vendor funded discounts, co-op and other marketing funds, and rates for returns and damage. Stability in the buying team at Amazon corporate can be a challenge as well and it is a very data-driven environment.

3P, or 3rd Party. 3P allows any 3rd party to sell on Amazon and represents 60% of the merchandise volume on Amazon. There are over 2.2 million businesses using 3P. Within this segment there are three approaches.

o   FBM – Fulfilled by merchant: The simplest and fastest way for small companies to start selling on Amazon where you post your products and handle the fulfillment, but you do not get the Prime features.

o   FBA – Fulfilled by Amazon: For this option you ship your products to Amazon warehouses, and they do the fulfilment and have access to Prime features. Not as simple as it sounds as there are many requirements and you’ll also have to pay fees for storage, aged inventory, refunds, pick-n-pack, etc.

o   SFP – Seller Fulfilled Prime: This is the top 3P tier and only available to those accounts that have proven they can meet Amazon’s operational standards.

If you do decide to sell on Amazon, what’s the easiest, fastest, and most controllable way to do it? Sell to an existing 3P player that is a SFP or FBA account. There are plenty of companies that have mastered 3P selling on Amazon and you can simply find one that matches your needs and sell to them and let them do the hard work of managing your business on Amazon.

But the question was ‘should you sell on Amazon?’ and in my opinion, if you are trying to build a brand, Amazon is not the place to do it. I’ll explain why next week.

Postscript - Just as I finished writing this piece, Amazon announced they will be greatly reducing their own private label business (which is one of the reasons new brands should not be on Amazon, more on that later) which tells me that even Amazon has challenges building brands on Amazon.

Next week: Why new brands shouldn’t sell on Amazon

Two weeks: Considerations if you decide to sell on Amazon.

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