E-commerce business models are continually changing. New trends form, old ones fall away. For those selling on Amazon, these trends move even quicker and typically receive influence from changes in marketplace rules.
As we enter the second decade of this second millennia A.D., it goes without saying that the Amazon marketplace isn’t like what some remember it to be at the start of the previous decade or earlier. Boundaries are more defined and come with stiffer penalties; the words “liability” and “authenticity” are frequent in email exchanges, forum posts, and battles between brand owners and sellers.
Because of all this, I suspect the future of the Amazon marketplace for both merchant-fulfilled and FBA sellers will look much different and undoubtedly leave sellers who cannot adapt to find other means to peddle their wares.
In this post, I break down a few significant trends that could stand the test of time thus far but might be in for substantial shakeups in 2020, as well as where new trends may surface for those crafty enough to pivot.
1. Retail Arbitrage
The idea of arbitrage on the surface is simple: buy something for less than what the market will pay for it and re-sell said ware at or slightly above market rate. In simpler terms: buy low, sell high.
The concept isn’t complicated. Buying low and selling high is a fundamental concept in business, especially goods-based firms. Distributors and suppliers provide products at below-market pricing, and retailers sell at market rates, pocketing the difference.
Retail arbitrage is somewhat unique. Instead of buying from distributors, people selling on Amazon buy their wares from retailers directly. They then turn around and re-sell it on the marketplaces for a potential profit.
These opportunities often come in the form of clearance sales at big stores like Target, Wal-Mart, and the like. More niche opportunities may come from a regular sale or a lower-priced event, or a level of market scarcity that creates the potential for large profits because buyers are willing to pay multiples above market rate.
The retail-retail business model introduces some issues, however, especially from a brand owner’s perspective. Sellers usurp the effort to build a vetted supply chain by tossing themselves into the mix without warning.
All of a sudden, brands now have this new player selling on Amazon that they a) know nothing about, b) cannot control with efforts like minimum advertised price (MAP) policies, or sometimes c) prevent from selling on marketplaces altogether.
There can be any number of reasons why a brand would want to control their product’s exposure to the general public. Those reasons don’t matter and aren’t crucial for the sake of this discussion. Here are a few things I expect sellers who do retail arbitrage are going to have to look out for even more this year.
Increased Intellectual Property Complaints
As a brand owner, seeing your product surface on the Amazon marketplace when you neither put it there nor were you informed someone in your supply chain did so is startling. Often it triggers the typical legal maneuver of considering the action a violation of the brand’s intellectual property.
Intellectual property law is vast and full of hair-trigger actions like Cease & Desist letters, “counterfeit” lawsuits, trademark infringement lawsuits, etc.
For retail arbitrage, selling on Amazon in 2020 means knowing which brands are more likely to take these kinds of actions against you as a business owner or potentially leverage Amazon to shut down your account altogether.
Amazon Brand Restrictions/Gating
Several months ago, Amazon announced the Intellectual Property Accelerator Program, a one-stop solution for brand owners to secure their trademarks and legal ownership of a brand name and get it plugged into the Brand Registry.
By being in the Brand Registry, a brand owner can take more swift actions on those that may be selling on Amazon said brand’s products without authorization. Brand Registry participants can also dictate to a certain degree the requirements for a seller to be able to sell their products on the marketplace.
For 2020, I foresee more brands taking advantage of this tool not only as a means to rein in unauthorized sellers but because Amazon is going to force them to do so.
While this might be a bit of wishful thinking on my part, I foresee Amazon taking a stricter stance on enforcement by acting more swiftly when it comes to Brand Registry-based actions and general contacts through email or other forms.
A Side Note About the First Sale Doctrine
In United States law–and others, I’m sure–the copyright for a product as it pertains to end-use stops with the sale of said product to customers. Legally, one cannot sue or claim other legal action because someone re-sells a product they purchased.
While it is a legal affirmation that comes about via copyright law, it is not a law itself. Marketplace operators such as Amazon are under no obligation to allow all sellers to sell all things they legally obtained to anyone at any time.
As the owner and operator of the Amazon marketplace, Amazon is allowed to dictate what products can and cannot be sold by whom and under what conditions.
For example, you bought a watch at a deep discount from a source (the source doesn’t matter). Your goal is to now re-sell it for a higher price. Legally, you are allowed to do so. Amazon, however, can also create rules (and has) about who can sell watches and has the entire legal authority to enforce those rules. Amazon is under no obligation to allow you to sell the timepiece as you see fit on their platform.
2. Private Label
This year is going to see massive shifts for those selling on Amazon their private-label goods. To stand out this year, sellers will have to go much farther beyond merely finding a product that has untapped market potential, getting a Chinese factory to make it, and selling it for a profit.
For sellers to be able to take private-label opportunities and turn them into real money-printing machines, they are going to have to build entire brands. Random, no-name kitchen gadgets aren’t going to cut it anymore. Excluding some niches, the Amazon marketplace has more than a fair share of Chinese replicas that come from the very same factories private-label Amazon sellers utilize.
Products are not only going to have to have real, reputable-sounding brand names, but the product themselves will have to look first-class. It is a buyer’s market, and products will have to stand out. This shift is not unlike how products have to stand out on retail store shelves to grab your attention.
With more eyes ending up on 3rd-party sellers last year thanks to the slew of news articles about the very same genre of marketplace vendors, buyers are going to be more wary of from whom they are buying their goods if not Amazon itself.
If a home decor item from a brand called “Jersey Home” is for sale from a seller named cosmeticbeautystoreusa, I suspect that’ll start raising more red flags in buyers’ minds than it used to. While not all buyers will care, we can draw parallels to the brick-and-mortar retail space. When was the last time you went to a store like Rite-Aid or Walgreens for home decor items?
3. Fulfillment, FBA, and Prep
Spend more than five minutes in the Seller Central forums, and you’ll quickly discover Amazon isn’t being as relaxed as they used to about removing seller feedback. As we know, a seller’s feedback rating can affect the rate at which they receive the top buy box position for listings. Translation: poor seller feedback = fewer sales.
Sellers will need to be on their game about how products are packed, prepped, and shipped to customers. For those utilizing Fulfillment by Amazon (FBA), ensuring products can withstand the chaotic and sometimes nightmarish conditions of Amazon warehouses will be massively important.
As far as selling on Amazon goes, I don’t foresee significant changes in policies in this regard. Still, I do feel a wave incoming of 3rd-party sellers who will end up being burned by stricter feedback rules and the resulting lower seller feedback scores.
Seller Central Support will respond to rebuttals with denials and refuse to entertain the discussion further, sellers will get upset and take to the forums, and others who have sold on the marketplace for years will find some hole in their logic. Rinse and repeat.
Is There Any Good News?
If you’re paying close attention, this is all good news. 2020 is going to be the year of culling the weakest of the 3rd-party herd. Those who came to the platform thinking it was a get-rich-quick scheme because a YouTube guru told them so, the garbage sellers, and those who aren’t willing to build a versatile and sustainable e-commerce business are all going to be left by the wayside. The rest will soak up the market and profit massively.
While there will always be some who succeed, selling on Amazon isn’t just buying toys on clearance at Wal-Mart. Standing out as a new and upcoming brand will be the key to long-term success in 2020. Last year, retail arbitrage and low-effort private-label products were a great way to learn the marketplace. This year, take that knowledge and build an empire.