Amazon is often painted as the harbinger of doom for established retail businesses, but many small operators can profit if they play their cards right.
Ever since the first whispers of Amazon appearing in Australia right through to its announcement of a fulfilment and distribution centre in Melbourne, Amazon has put a shiver down the spine of local businesses.
However, for smaller businesses there could be opportunity in working with Amazon by selling on its marketplace.
Former business head of Amazon Services and current partner at Buy Box Experts, James Thomson, told The Pulse that SME retailers who did not prepare for Amazon’s arrival were missing out on an opportunity.
“A small retailer today can leverage the Amazon channel to drive more sales – it’s quite common to see retailers start a small Amazon account only to find that account soon representing more than 50 percent of their total sales within one or two years,” he said.
There are literally thousands of successful third-party sellers on Amazon marketplaces leveraging the channel to generate sales and profits – so how did they do it?
6 ways to make the most of Amazon
1. Get in quick
Some retailers already sell through a variety of channels, and those who do so profitably are best placed to handle the arrival of Amazon.
In fact, it’s been possible to sell via the Amazon platform since 2012, and so savvy, online-only and multichannel retailers may already have shopfronts on eBay, Amazon and more.
For those who have yet to explore these alternative eCommerce channels, now is the time to get started.
“Australian retailers who get in early will benefit from an initial lack of competition, before tens of thousands of other sellers also appear in the Amazon Australia marketplace,” Thomson said.
2. Learn how Amazon is different
Even if you’re already selling through multiple online channels, selling on Amazon requires another level of focus and dedication.
“Most online sellers find that the Amazon channel requires far more discipline to deal with the everchanging competitive landscape,” said Thomson.
“Amazon’s seller performance criteria — including things like late shipment rate and order cancellation rate – are not only more stringent than other online channels, but also far more unforgiving if a seller repeatedly falls behind.”
3. Understand your unit economics
As a competition-driven marketplace, Amazon provides a channel to market for sellers who are often competing over the same customers on the same products – and price plays a big role.
Where price is a potential differentiator, it’s vital retailers understand their unit economics.
Sellers on Amazon that don’t have a firm grasp on their unit economics can find that Amazon will make its commission, but the seller won’t make any margin.
“Calculating unit economics will help provide the roadmap a successful seller needs to make better decisions about inventory, pricing, vendor negotiations, returns policies and new product development,” said Thomson.
4. Develop a differentiated sourcing strategy
Selling on Amazon can be a unique challenge that for many retailers will mean experimenting with a unique range.
“Being a general merchandise seller is a rather tough model on Amazon, as it’s not unusual to be competing with plenty of sellers who don’t understand their unit economics and will be unknowingly selling below cost, making it impossible for you to compete,” Thomson said.
Consider how you can offer a unique product or range of products, and therefore not have to worry about price erosion due to heavy competition.
“I recommend sellers look at either developing exclusive reselling agreements with brands so they aren’t competing with other sellers on the same collection, or incorporate private label brands of their own.”
5. Digitise your inventory
Amazon sellers can manually upload information for each of their products, but it’s not efficient to do that.
Instead, consider an inventory system and e-commerce platform that can manage all your product information and publish it via your own website, Amazon, eBay, and wherever else you might attract transactions.
Neto is such an e-commerce platform, allowing all of this functionality as well as advanced inventory features like demand forecasting, generating stock allocation reports, out-of-stock notifications and restock alerts.
For existing MYOB customers, adding Neto to your software suite will allow you to sync inventory, invoices, payments, customers and suppliers with no double handling of data, so that you can manage a multichannel retail operation from your desktop.
6. Understand that Amazon is not your partner
Amazon isn’t just a service provider – it’s a highly competitive retail business in its own right.
“Amazon is not your partner,” Thomson said.
“Instead, it’s a provider of a sales channel platform, one where the Amazon company will also sell product in direct competition with third-party sellers.
“Because Amazon as a company is interested in long-term profits rather than short-term profits, it will regularly use its own pricing to drive long-term loyalty rather than short-term profits per shopping cart.”