Why is retail imploding before our eyes? The statistics of brick and mortar bankruptcies are alarming. Compounded with the launch of Amazon Go with a cashierless experience and an entry into pharmaceuticals, there is major displacement on the horizon.
Or is this just pie-in-the-sky thinking for people who don’t truly understand the mechanics behind Amazon’s success with their FBA (fulfillment by Amazon) program.
To sum it up, Amazon essentially was fighting in the low margin inventory discount business for the first ten or so years. They had buyers of all background scouring inventory channels to keep them stocked on a losing game of “demand prediction.” They were competing against the well funded rise of big box empires of any niche category. Toys. Pet supplies. Office supplies. Books. Food. Movies. Whatever you want. Instead of ma and pa shops imploding through an invasion of big box stores, a revenge is now happening.
As they entered the web services business, they understood the scale and profitability of becoming a services company. The technology would be the strength. Now, Netflix goes through Amazon to stream and store all their catalog of content, despite being a direct competitor.
For the retail portion, Amazon outsourced inventory risk to individual sellers. At first, this caused some price spikes with shortages in supply, especially at key times of the year like Black Friday. After a few years, competition has become so fierce, there is massive discounting that happens from inexperienced sellers as the gold rush to join the program continues. Now, over 60% of what is sold on Amazon is sold via FBA. Our products are shipped and stored and ordered from an Amazon warehouse. Many small sellers, with no business acumen or credit, get slaughtered in their first deep Q4.
The fees are high. In all, about three times as high as Ebay.
We pay to have items shipped to an Amazon warehouse. We eat the returns and pay for storage in the warehouse. Then, Amazon takes a hefty fee on top of that.
FBA has essentially paid for the massive warehouse expansion the last 8 years. Sellers are getting more savvy. We scour price disparities between vendors and arbitrage the difference. We hunt for clearances and buy in bulk. Many, who want scale, go for private label dreams and search on Alibaba and AliExpress for cheap products to “brand” and ship to the US.
This is a gold rush and it is killing brick and mortar. Call it the uberization of retail and nationwide clearances.
In my first full year of Amazon, I learned a ton. As a business major, I’d say more is learned in the first year of a startup operating under your own capital than business school. Application always trumps theory.
There are so many mistakes a I made through the year, so even though I sold $110K in just one month, I felt like I didn’t do enough. I could have scaled so much bigger. On Facebook reseller groups, there are people doing ten times the amount every month, which creates a followership cycle of business envy. It’s almost like Reseller Porn. “Hey, look at my sales!” We all have secret tricks. Amazon has gated so many categories and brands that there is an actual economic moat for many small sellers.
How can a brick and mortar store compete against an army of small business with extremely motivated and savvy sourcers who look for the smallest of price disparities on Jungle Scout? How can it fight whispers of special nationwide deals on social media? It can take six weeks for a department store to source a T-shirt in a rush. Now, a teenager in their basement can be the largest t-shirt designer in their state by uploading a design to Merch by Amazon. They don’t have to take on any inventory. They get paid a royalty when it sells.
This is sort of the concept behind self publishing. Anyone can do it. There is no barrier to entry.
There are a few safe places. Large items in particular are insulated. So furniture stores are okay for now. As Tesla knows, there is a dealership network that makes it difficult to do direct sales in the auto market. Walmart remains the only colossus that stands in Amazon’s way to win the last mile.
2018 is here. I’m still sourcing part time, on top of a full time job and other projects. I already have a list of SKUs to go deep on for next christmas season to 10X my sales. Do you?