There are headwinds on the horizon for Amazon sellers. Yes, e-commerce has been an undeniable source of growth for many brands. But there are six key factors that will make this channel far more challenging this year. Travis Johnson of marketplace consultancy Podean explains what to look out for and how to protect your brand.
Cast your mind back to late 2019. There were lots of conversations with big brands telling us that focusing on e-commerce and marketplaces was on their agenda, but not their top priority and not a massive driver of sales.
Then, of course, Covid hit the world and e-commerce deliveries were the main way many Americans came to rely on receiving the products they needed. Amazon was a clear beneficiary, with 2020 net sales growing to $386bn, a 37.6% increase. Many brands – even those late to the party – saw substantial year-on-year e-commerce growth. 40%, 80% and even 120% growth was not uncommon.
But is the pendulum swinging back?
The growth many brands enjoyed is unlikely to be replicated this year. Brands currently selling on Amazon are facing five clear challenges:
1. There’s more competition than ever
It wasn’t just a couple of brands that realized they need to focus on e-commerce and marketplaces during the pandemic; it was hundreds of thousands of new sellers. More competitors mean it’s harder to maintain top rankings, and more competition for advertising placements drives higher advertising costs and lower share of voice leading to a lower share of shelf.
Marketplace Pulse suggests there are 9.8 million registered sellers globally and 1.9 million active. They estimate that in 2021, 354,000 new sellers have joined the platform – that means 3,408 new sellers every day, or 142 every hour, or even two every minute. These competitors are also more sophisticated, better prepared, and optimized for Amazon. Brands expecting to achieve stratospheric growth on Amazon just by riding the wave are going to be disappointed.
Amazon has also expanded its own retail presence globally, now present in 20 countries. With every new geography Amazon adds, it also sources and cross-sellz products between markets. For example, a product bought from a local brand in the UK will likely be offered for sale on the Swedish domain amazon.se. So your competition on Amazon isn’t just against other Amazon seller. It’s exacerbated by Amazon itself.
2. Margin pressure
We hear from clients that the vendor negotiations this year have been particularly ’robust’ with marketplaces – especially Amazon – demanding significantly higher margins and concessions. Co-op marketing fees are increasing, payment terms lengthening and other services such as paying for a Strategic Vendor Services (SVS) manager or merchandising placements are being mandated. Indeed we have heard that Amazon is framing that the only way to even have a full negotiation with them is to pay for SVS services.
Brands also need to leverage their agency relationships and broader knowledge to understand benchmarks for their negotiations. Sometimes a brand may be relying on its own past experience and not aware of other concessions that might be more beneficial to their business.
3. The world (and its malls) are opening back up
Skyfii is a leading provider of wifi and analytics to shopping malls across the US and measures foot traffic among other metrics. From January to March 2021, the company saw mall traffic rise 45.3%, representing millions of extra shoppers buying from brick-and-mortar retailers.
During this same period, overall retail sales did not increase by the same percentage. This data indicates that consumers are decreasing their e-commerce spend and buying more items in person. This trend is likely to accelerate quickly as more consumers become vaccinated.
4. Consumer uncertainty around the economy
The latest round of $1,400 stimulus checks was delivered starting at the end of March and will flow to most eligible Americans by the end of May. In the weeks leading up to the check’s arrival, we saw retail sales drop off. This likely indicates that consumers decided to wait until the check arrived before spending more.
While February retail sales dipped 3% from January levels, recently released March data reveals the considerable impact of stimulus checks. Retail sales in March jumped 9.8% higher with food and beverage, motor vehicles and parts, sporting goods, and clothing leading the gains – contributing to the best month for retail since May 2020. Not surprisingly, the May 2020 gain of 18.3% came after the first round of stimulus checks.
Suffice it to say these wild monthly swings significantly impact consumers and their spending patterns — and also complicates forecasting for brands.
5. Global logistics are still struggling to keep up
Ships are stationed off the coastlines around the US and all aspects of receiving and transporting goods are under pressure – in terms of both the timing and cost of imports. Many brands are struggling to keep products in stock.
6. Amazon traffic fluctuations
Using Google Trends as a macro view on consumers searching for the term ’Amazon’, we saw a decline of approximately 7% throughout the first three months of the year.
Using more precise data, SimilarWeb saw a dip in total Amazon views during the February and March months by approximately 10% from January. From late March, page views appeared to be trending upwards – another factor that may have been impacted by stimulus checks.
When we look at year-on-year comparisons, SimilarWeb reveals an interesting story.
Between January 1 and March 31, year-on-year total Amazon units sold increased 35%, page views increased 32% but revenue only grew 24%, indicating a lower average selling price for brands on the platform.
When examining some specific categories, the data is more pronounced. For example, pet supplies experienced 43% growth in product views compared to the same period last year, but category sales revenue only increased by 15%. Cosmetics page views were up 11% year-over-year, but revenue declined by 5%. For computers and laptops, pageviews declined 4% and revenue declined 5%.
With all of this data and insight, what should brands do?
Make sure marketplace presence and performance are as strong as possible. Brands must ensure their content, creative, retail operations and advertising are all optimized. Brands should be careful not to leave themselves exposed to competitors stealing market share.
Be prepared to revise 2021 targets for each sales channel. All indicators point to overall e-commerce growth, although the margins are likely to be considerably lower than those seen in 2020. Plus, a bounce-back in physical store sales is a given.
Monitor product-level demand closely. The fluctuating economy, unemployment, and stimulus checks all make for unpredictable times. Consumer spending patterns may shift – and consumers may opt for more affordable products over more expensive ones.
Focus rigorously on predicting demand and ensuring supply chains are optimized. Running out of stock doesn’t just inhibit short-term revenues; e-commerce marketplaces will also penalize brands for this over the longer term, which will likely negatively impact rankings (which can take some time to recover).
Continue to explore the addition of new products, new markets, and new marketplaces to drive sales growth.
Travis Johnson is the global chief executive of marketplace marketing agency Podean.