Amazon retail is less profitable then third party retail

By Chris Dawson May 3, 2016 - 12:55 pm

Sell On Amazon featLast week I wrote that selling on Amazon means competing with Amazon retail and asked if it was an unfair situation. Many of you told us that as soon as you get a top selling line Amazon would suddenly start selling the same or a similar product and the competition is tough.

Amazon have recently released their last financial quarters results and it makes interesting reading when considering third party retailers competing with Amazon.

ChannelAdvisor’s analysis of Amazon’s results calculates that third party sales on Amazon has now hit 61% of their total GMV. This means that almost 2 in 3 sales on Amazon are from independent retailers and only 1 in 3 products are sold by Amazon.

In addition ChannelAdvisor reveal that third party Amazon sales are growing at 35-45%, way faster than Amazon retail and twice as fast as the growth rate of ecommerce. Amazon retail sales are growing around 20% roughly equal to overall ecommerce growth.

It’s worth thinking about Amazon’s business model. If you put your products into Fulfilment by Amazon (FBA), they have roughly the same storage, picking and packing costs as if they stock the product themselves, but they bill you for it. They have a zero cost of sale and FBA makes your products for next day or same day Prime delivery so the service is identical to Amazon retail.

Put very simply Amazon have a lower cost of sale, lower investment and the same service to customers with third party sellers. Your business is more profitable to Amazon than their own business and with less investment in stock.

While it may sometimes seem that Amazon are a major competitor (and yes they are), they’re not as keen to compete with you as it might seem on the face of it. Your business is more profitable to Amazon than their own retail business and they really do want and need you.

Whether being more profitable for Amazon than their own retail operations makes you feel better about competing with them is another question. We suspect you care more about your profits than Amazon’s and you’ll probably stick with them all the time you’re making money.

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