Independent retailers don’t have to be the victims of Amazon’s success. Here’s how they can leverage their strengths to succeed on Amazon.
These days, as a business, you can’t really afford to not be selling through online marketplaces like Amazon. No matter what you sell or the size of your business, online marketplaces allow you to reach an even wider audience and increase your sales potential by accessing a global, 24/7 consumer market.
You may not have considered Amazon as a viable option for your business. There is a perception that Amazon only caters for low-priced goods from established brands, and ruthlessly squeezes independent businesses.
But Amazon relies heavily on its third-party sellers, accounting for over half of its sales volume. Over the years the Amazon marketplace has grown exponentially into a highly competitive business network with brands and retailers of all sizes. These aren’t suppliers to Amazon, they’re independent businesses selling directly to buyers.
This article is intended primarily for independent retail businesses who have not started using the Amazon marketplace. We’ll walk you through the best ways to leverage your strengths and create a successful strategy for selling on Amazon.
How can independent retailers sell on Amazon?
Amazon is continually developing new platforms and programs to support all kinds of businesses. Depending on your own unique business, you could look to:
- Sell products to consumers through Amazon Marketplace
- Sell to other businesses through Amazon Business
- Use Amazon Handmade if you make your own products by hand
- Take advantage of Amazon Launchpad to sell an innovative new product
- Wholesale directly to Amazon itself through Vendor Central
Amazon Marketplace is what most of us think of when we talk about selling on Amazon. It provides access to the main Amazon retail site, with high traffic, high sales volumes and a hyper-competitive business environment.
Amazon Business is a business-friendly offshoot of Amazon Marketplace. From a seller’s point of view it’s very similar to the main marketplace, but for business buyers it offers features like purchase orders, quantity discounts, multi-user access and better handling of taxes.
Amazon Handmade deals exclusively with artisanal products. Products must meet Amazon’s definition of handmade, and are limited to product categories including jewelry, home decor, apparel, shoes, beauty, sporting goods, toys and games. Businesses get a special storefront page and their products can have multiple personalization options.
Amazon Launchpad helps product innovators sell on Amazon, and has partnerships with crowdfunding sites and venture capital firms. Businesses who have successfully funded their products get support with onboarding and product set-up, advertising credits and participation in special marketing campaigns.
Vendor Central is an invite-only portal for manufacturers, brands and distributors to sell directly to Amazon in bulk – wholesale. Unlike the other options, this means you are selling to Amazon itself, not directly to consumers. This can mean higher sales volumes, but lower prices and less control.
All these different programs (and more) show Amazon has invested a lot of effort to help other businesses thrive on its site. Why would it do that? Because it wants to be the “everything store”, where any product can be found and bought at an attractive price, and it can only achieve that goal by helping other businesses sell effectively on their platform.
What advantages do retailers have as Amazon sellers?
Independent stores cover just about every product category and price point out there, so there isn’t a universal list of advantages that every retailer will have as an Amazon seller. There are, however, some common ones:
- A specialized niche that customers are passionate about
- A broad product range in stock at the store
- Extensive product knowledge and expertise
- Regular contact with customers and a deep understanding of them
- Staff familiar with the business and, potentially, with time on their hands
- An existing network of suppliers focused on the product category
Usually, your niche is your greatest asset and most of the other strengths come from that. The era when businesses could be successful selling online just by “turning up”, and selling whatever products they could lay their hands on, is long gone. Businesses who don’t specialize usually find that they can only compete on price and their profits quickly disappear.
Ecommerce is cold and transactional, particularly on marketplaces like Amazon.
As a brick-and-mortar retailer, you will presumably already have a broad product range in stock. Specialist shops, such as an art supplies store, can have hundreds if not thousands of products, ranging from single brushes and paints, to large easels and frames. Having products on hand is a huge advantage over a new online business that has to buy stock from scratch.
Product knowledge is just as important. You’ll need to understand the competitive landscape on Amazon, analyzing which products are available and which are not, how other sellers operate, what buyers are looking for and so on. An entrepreneur without extensive product knowledge would find that very difficult, and be likely to make big mistakes.
Similarly, having direct contact with living, breathing customers is hard to come by online. Ecommerce is cold and transactional, particularly on marketplaces like Amazon, and you won’t normally have any idea why someone bought the product that they did. You certainly won’t get to see which other products they considered, and they are much less likely to ask you questions or explain their needs than a customer in your shop. You can harness those in-store insights when you sell online.
Another aspect of having a brick-and-mortar store that can fit nicely with selling on Amazon, at least in the short term, is that physical shops usually have slow periods when staff can list items or fulfill orders without impacting the running of the shop. Other types of business can’t fit selling online into natural downtime – keeping up with their Amazon sales is a substantial extra effort with additional costs.
Finally, you have an existing network of suppliers which means you can replenish stock, negotiate discounts, discover new product lines and get information on specific items. By being so intrinsically connected with your industry you are in a great position to extend your business online.
All of these are genuine strengths that many brick-and-mortar retailers could leverage to sell on Amazon successfully. There are, however, disadvantages to combining online and offline business models as well.
What are the challenges for retailers who sell on Amazon?
Amazon is a demanding, competitive and ever-changing marketplace. Not every retailer has a good chance of succeeding there, and those that do will have to work at it and overcome challenges like:
- Tracking and updating stock levels in-store and online
- Finding accurate and consistently formatted product data
- Keeping on top of performance standards as sales grow
Keeping data in sync across multiple “sales channels” in an old problem in ecommerce. Product details and pricing need to be kept accurate, but it’s stock levels that tend to cause the biggest problems. If an item sells out in the shop you must ensure your Amazon stock is set to zero, or you could end up overselling – receiving an order which you cannot fulfill.
Amazon’s performance metrics are notoriously extensive, complex and demanding.
In that scenario, you might want to wait for a new delivery of stock, or simply cancel the order, but both late dispatch and cancelled orders are a black mark against you on Amazon, and must be avoided. In the short term, manually updating stock levels at least daily may work as a stopgap. The robust solution is to have a live inventory management system that connects between your store and Amazon, and adjusts the amount of stock remaining in real-time.
In a physical store where people can see and touch your stock, you don’t need a database of detailed product information. To sell on Amazon, that’s exactly what you need, particularly if your products are not already in Amazon’s catalog. Online consumers buy with their eyes, so the text and images for your listings are all-important. You could, of course, create the listings from scratch yourself. Another common strategy is to take your suppliers’ product data as a starting point, then use an offshore ecommerce team to enrich it with more detailed information. In 2015, we wrote about how UK business SportsBubble did exactly that.
Finally, Amazon’s performance metrics are notoriously extensive, complex and demanding. Always keep on top of handling times, customer messages, returns and so on. If your standards slip, the result can be negative seller feedback, warnings and even an account suspension. Make sure you thoroughly understand everything that’s required and don’t grow too fast. If you have a busy day in the shop and don’t get time to ship Amazon orders, you’ll just have to stay late until they are done. Brick-and-mortar stores close every night, but online stores are open 24/7.
Overall, start slow and let the business grow organically. That way you can adjust and learn at a manageable pace. There is a lot to get familiar with, and the best way to develop your knowledge of the marketplace is through trial, error and experience.
What’s the best Amazon strategy for brick-and-mortar retailers?
Pulling it all together, this is our ten-point strategy for independent retailers expanding into the Amazon marketplace.
We mostly have niche retailers with large product ranges in mind here, so this won’t fit every situation, and it isn’t a sure-fire recipe for success. What it should do is provide a base to customize a strategy that’s right for your unique business.
- Browse products in your categories on Amazon to get a general feel for the market.
- Look at the existing sellers for these products. Who else is selling them, and what is their feedback like? What kind of businesses are they?
- Search for a few of the more unusual products you stock in-store to see if they are available on Amazon. There could be an opportunity to add them from scratch.
- Use a product evaluation tool to assess the competitive situation. These take a spreadsheet of your product UPCs and wholesale costs, and add data from Amazon on selling prices, competitors etc.
- Make some educated guesses, using the data you’ve built up, at ten or so products that could sell at a good price. Finding profitable products is more important than finding high-volume products. Your looking to build a portfolio of good products, not a small number of bestsellers.
- List those products for sale, see if you get the Buy Box and any orders, and watch carefully for other sellers changing their pricing.
- Dispatch orders, respond to messages, and deal with returns as quickly and professionally as possible. Bend over backwards and take a hit if you have to, as you can’t afford negative feedback early on.
- Continue to observe the market and develop your thoughts on what might sell.
- Choose another ten or more products, list them for sale, and adjust your course accordingly.
- If and when your sales start to take off, consider a faster expansion, specialized software such as repricing tools, new product lines and changes to staffing.
Why should you progress so tentatively, when you already know what sells in your brick-and-mortar store? Well, product popularity is different online. You might find that your best sellers in-store sell poorly online, or are too competitive to make a profit on.
Conversely, you might find that an obscure product that gathers dust in-store is a big success online – people don’t come to your store for it because they don’t know it’s there. But they search for it on Amazon precisely because it is hard to get hold of, and will often be delighted to find it there.
Despite what you may have heard, don’t rush to use Amazon’s fulfillment service, FBA.
As you grow, and try more of your products online, also consider opportunities to add products on Amazon that you wouldn’t stock in-store. This is where your existing supplier relationships come in really useful. There might be products that they haven’t offered you before, because they aren’t right for your regular customer base. Online there is a much larger market and a lot of interest in very niche products that are hard to find.
Despite what you may have heard, don’t rush to use Amazon’s fulfillment service, FBA. This means you send products to Amazon’s warehouse upfront, and when an order comes in they pick, pack and ship it to the customer without your involvement. It means your listings get the Prime badge and they are likely to get a sales boost from that.
On the other hand, it can be expensive, particularly for slow-moving products, and crucially it means you have to manage your stock in two different locations. That can be a big headache. For sellers with large ranges, FBA is best reserved for products with good profit margins that consistently sell well, and have few (or zero) other FBA sellers.
Amazon Business could be worth considering if you usually sell to businesses from your store. Amazon Business holds sellers to even higher performance requirements, and many businesses buy from Amazon through the ordinary consumer site, so it’s not crucial. But if you are very focused on B2B sales already, the ability to set up quantity discounts, company certifications and professional-grade products only available to businesses could be fruitful. At the moment, there are more gaps in the market for business products on Amazon than consumer products.
If you sell your own unique products, whether they are handmade or custom-manufactured for you, you can look into adding new products to Amazon’s catalog. Amazon Handmade is still relatively small, compared to its main competitor Etsy. The market for custom-manufactured products (private label), however, is heavily saturated in many categories and competition is intense. Look into listing optimization, PPC advertising and reviews. It’s a whole different ball game to retailing existing brands.
Amazon is a huge threat to conventional brick-and-mortar retailers, there’s no doubt about it. The media is full of stories about the downfall of conventional stores, and a lot of that is down to online shopping and Amazon.
So why are Amazon so successful, while physical stores suffer? Because they are obsessed with making their customers happy, and they go to fantastic lengths to achieve it. They regularly sell products at a loss, invest billions in warehouses and ever-faster shipping, and spend more on research than any other U.S. company.
But they are also responsible for less than half of the units sold through their website. Third-party sellers now account for 52% of Amazon’s sales. But that’s not a sign of Amazon failing to keep up, it’s a sign that marketplace sellers are an absolutely vital part of the ecosystem. Customers want their products, and they like their prices. Amazon, despite its size, can’t hope to provide that mind-boggling diversity of products all on its own.
Used strategically as an additional sales channel, Amazon’s huge base of buyers offer a lot of potential to independent store owners. It just might turn out that the best way to handle the threat of Amazon is by taking advantage of the opportunity of Amazon.