Fulfilled by Amazon is killing traditional retail — here’s how you can fight back
It’s a lot simpler than you think
Amazon is slowly taking over retail. It’s a slow phenomenon that’s almost 20 years in the making — but is inevitable.
Central to Amazon’s strategy is its e-commerce marketplace. E-commerce marketplaces aren’t new — in fact eBay pioneered the concept with its auction-based product marketplace. Amazon didn’t even start with the marketplace — before 2005, most products on Amazon were stocked and sold by the retailer.
Amazon began allowing third party sellers onto its platform in 2000 — Jeff Bezos in his 2005 shareholder letter opined that:
If a third party could offer a better price or better availability on a particular item, then we wanted our customer to get easy access to that offer
Fast-forward a decade later, and Amazon’s marketplace now accounts for 90% of its sales. This is an interesting phenomenon — Amazon now is a retail platform, not just a retailer.
This has been a major hit for Amazon. Its Q2 earnings exceeded expectations with three straight quarters of profits. Last Christmas, so many sellers signed up for Fulfilled By Amazon (FBA) that the retailer ran out of warehousing space. It has since doubled its warehouse count in preparation for the 2016 holiday shopping season.
Integral to its success is Amazon’s success at onboarding sellers onto its platform as quickly as possible, and pairing it with its strategic data and retail analytics.
No retailer can quite beat Amazon at retail analytics. Armed with mountains of data on its customer behaviour, Amazon has turned its pricing and Buy Box algorithms into works of art and weapons of commerce, deftly picking and placing the products that generate the most margins for itself — the FBA and Prime-eligible SKUs fulfilled and sold from its warehouses.
How can retailers possibly hope to compete?
The answer is surprisingly simple
Amazon’s retail power lies in 4 major areas:
Most major retailers already have or are investing in #4 — but rarely invest in #1 to #3!
Which is where the true opportunity lies.
In retail, the answer to moving more inventory is to have more selection, and nobody does it better than Amazon. Unlike most retailers that pick which merchandise to sell, Amazon sells everything — basically anything that is legal and which is offered by a third party seller who uses FBA.
That’s a powerful place to be in. No merchandising department can hope to compete with the effect of crowdsourced inventory offerings
Don’t compete on price or shipping; compete on catalog breadth
Instead of trying to out-compete Amazon on price or free 2-day shipping, a key area that retailers can focus on is developing their own marketplaces.
Having your own marketplace is a compelling argument. It allows retailers to leverage their massive, well-developed supply chain and logistics, and it allows them to creatively exploit their existing real-estate assets like shopping centers, factory outlets, strip malls and downtown shopping outlets.
So how can retailers start building out their marketplaces?
The key lies in existing marketplaces
Amazon’s marketplace sellers aren’t bound to the platform by loyalty; they’re bound to it because it’s the only one like it around.
Best Buy has a marketplace, yes. Sears has one too. But none are as compelling as FBA.
But retailers can work hard to court these existing sellers. This is a huge opportunity, especially since the problems with FBA start mounting — from Amazon’s pricing algorithm that favors not the cheapest offer, but the offer that’s Prime-eligible, to the effect of FBA fees on seller margins
Court marketplace sellers by making it easier for them to onboard
Many sellers we spoke to complained of a major impediment to them onboarding — the fact that there is no standard system for them quickly upload their product catalogs to the marketplace and make them ready for publishing.
That’s a huge impediment, because an average-sized Amazon marketplace seller has at least a 100,000 unique products on offer, with some sellers (book sellers particularly) having over a million unique SKUs.
Managing a catalog of that size and trying to format it to comply with different marketplaces is a massive undertaking, especially since most sellers don’t have tech teams in place to write code to make the job easier.
Retailers can seize a huge opportunity here — by making it easier for sellers to onboard, they can allow Amazon marketplace sellers to crosslist their products on their marketplaces as well — effectively competing with Amazon’s catalog breadth.
Semantics3 can help retailers onboard sellers using our massive e-commerce database
So, here’s where we can help.
The solution is, as promised, quite simple to think of:
Here’s an example of such a product sold on Amazon’s marketplace. This is a Syma XC5 drone
This is what the visualized JSON response looks like visualized:
Link to CSV:
This is what the API JSON response from our API looks like:
This is important, because once you had a centralized, standardized and consolidated product record, you can easily convert it into any format you need to fit any marketplace, making it super convenient for your marketplace sellers to onboard to your platform.
Pretty cool isn’t it?
If you like what you see, book a call today with us to talk about how we can set up a customized API endpoint for you to offer one-click import for your marketplace sellers!
Written in San Francisco by the Semantics3 Team.
Post-script: It looks like Amazon has closed FBA to new sellers for the Q4 period. Check out the news here
Published at: October 11, 2016