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The big question: Are online marketplaces worth it for small retailers?

  1. Amazon
    iStock_German
    Francois Badenhorst

    Francois Badenhorst Deputy Editor Staff Member

    Posts: 67 Likes: 13
    4 |

    Is there any bigger middle man in the ecommerce space than Amazon? Just in terms of sheer heft, Jeff Bezos’s Seattle based monolith has completely altered the fabric of how we shop online.

    As many (or most) UKBF members are aware, Amazon isn’t just a standard ecommerce retailer. It’s also a marketplace; an ecommerce eco-system within which smaller, independent sellers can sell their goods.

    At this point, UKBF is a wonderful compendium of how to make the most of this new ecosystem. An armada of forum veterans make their living navigating through Amazon Marketplace’s byzantine maze of rules and regulation.

    Although no one in the forum is necessarily enthusiastic about Amazon (or other marketplaces like eBay), there are some who meet its challenge with a grim pragmatism. As the director of Arranview Jewellery and UKBF member Iain Henderson explained, “if you only have a website you could double your market reach just by joining Amazon”.

    But it’s far from a settled matter. Some members have grown increasingly disquieted with Amazon throttling their ability to make a healthy profit.

    In a recent thread, JJWinst noted that he had been selling on Amazon for years but “it certainly feels as though fees have been increasing”. A standard merchant fulfilled item in the sports clothing category now sits at a stiff 17%, he pointed out.

    JJWinst’s post prompted Paul Norman to write: “I do not sell on Amazon for exactly that reason. With that fee level, combined with the reality that Amazon is about selling cheap, I would end up making zero money.

    “I sell branded clothing. First, I have found it tends not to sell at all on Amazon. Secondly, people want a discount which makes it non-economic.”

    Norman’s point is up for debate, of course. Other members – in that very same thread, in fact – contested the idea that branded clothing doesn’t sell on Amazon. But Norman’s decision not to sell on Amazon is part of an undercurrent of scepticism towards Amazon and other marketplaces like eBay that’s present on the forum.

    The competition that’s present on these platforms is frequently a race to the bottom. As Pelparc explains, “We stopped selling on Amazon about 6-7 years ago. It wasn’t a moral decision, but more of a financial one as we didn’t make any profit from selling there.”

    In a thread on an eBay price war last year, Chris34 didn’t hide his contempt when he wrote: Competitors “are happy paying money to make the sale”.

    “Forget making a profit, they are losing money every sale. It’s a giant charity shop with millions of volunteers working for their eBay bosses, making their bosses money in return for little stars which mean nothing in the real world but mean everything to the volunteers. A bit like those on social media collecting ‘likes’ because every ‘like’ makes a difference in their sad little lives”.

    As Webprojectuk says, the reality is that Amazon and eBay are price driven marketplaces, populated by power sellers who focus on “on high volume with low profits”. “I have tested this method and it does work. But it’s hard work!” he writes.

    “The other option is to set your prices at mid-point and focus on faster shipping, better product images, titles and descriptions - you will get fewer customers, but the quality will be much better. This will allow you extra time to find unique products which you can charge a premium price before other sellers clock on.”

    The reservations around these marketplaces aren’t just financial, though. That’s a big part, yes – but some forum members remain starkly unimpressed with a company like Amazon’s moral credentials. “The damage they cause to the market, to small retailers, to competition,” says Clinton.

    “But, yes, becoming an Amazon seller is an easy way to start your own business; I can see the appeal for many. I wonder how many realise that Amazon is watching your every move and collecting the most amazing stats on your operation. When Amazon can use that to their advantage and screw you over they will.”

    Clinton’s point is echoed by DDMcMullan, who writes: “Other than the political side, they gather data on your sales and as soon as you have high selling products they'll cut you out in a heartbeat. Simply, I just don't see Amazon selling as a worthwhile long-term strategy.”

    The moral and financial tightropes of online selling are a never ending source of debate on the forums. Almost universally,  members acknowledge the hardships – but some accept this cost.  “For me, they give me scale/reach I could only dream of,” writes Pish_Pash.

    What’s your take?

    #0
  2. markwww

    markwww UKBF Newcomer Full Member

    Posts: 0 Likes: 1
    Setting up shop within one of the big marketplaces is relatively quick and easy, and therefore tempting, but there seems little point if your margins all but disappear with fees and you are not treated well.

    Using an all-in-one eCommerce platform like EKM or Shopify is likely to be much more profitable per sale. Admittedly these involve more work to set up, and you'll have to build traffic, but you will have a lot more flexibility in design and branding, and own your shop. Fees are generally monthly subs, but some services have sales-linked fees so read the fine print.
     
    Last edited by a moderator: Apr 21, 2017 at 3:38 PM
    Posted: Apr 21, 2017 at 12:15 PM By: markwww Member since: Feb 20, 2017
    #2
    PJ' likes this.
  3. PJ'

    PJ' UKBF Newcomer Free Member

    Posts: 2 Likes: 2
    Excellent article Francois. I joined only last week for thought provoking content just like this.

    It is the age old saying: "Do you want a good job, quick job or a cheap job. You can have two but not all three.

    Within your article the following statement illustrates the importance of knowing your customer before deciding upon or migrating to a chosen route(s) to market:

    "“The other option is to set your prices at mid-point and focus on faster shipping, better product images, titles and descriptions - you will get fewer customers, but the quality will be much better. This will allow you extra time to find unique products which you can charge a premium price before other sellers clock on.”

    TY PJ
     
    Posted: Apr 21, 2017 at 12:47 PM By: PJ' Member since: Apr 18, 2017
    #3
    markwww and Kat Haylock like this.
  4. Ecommerce Web Design

    Ecommerce Web Design UKBF Contributor Free Member

    Posts: 38 Likes: 4
    Quick answer is, amazon is good for amazon. When commission rates can be as high as 31% then you need pretty good margin to cover off ever thing else. If you have this good a margin then your own site with excellent SEO is the way to go. If you use a Saas store you still do not have 100% control over your site. I'd say run your own store, host it yourself and get a good designer to give it a pretty look feel. The pour the rest of the budget into SEO and social media and adwords.
     
    Posted: Apr 21, 2017 at 4:37 PM By: Ecommerce Web Design Member since: Feb 11, 2014
    #4
  5. Talay

    Talay UKBF Big Shot Free Member

    Posts: 3,627 Likes: 768
    Commission and completion fees are harsh but fair as if you don't like it, then go elsewhere but I can't help feel that it is morally and questionably legally wrong for Amazon to steal your business when the data to do so has been gathered through their platform.

    I mean, if you sell 10 or 100, they probably don't care but go sell 50,000 and they'll go to source and buy cheaper than you and push the price down below which you can remain profitable, thus putting you out of business in that product line. Of course, they then recoup their profits from ramping up the price as the seller of choice.

    I have noticed recently how many more times the Amazon price is way over the non Amazon (off Marketplace) price.
     
    Posted: Apr 21, 2017 at 7:09 PM By: Talay Member since: Mar 12, 2012
    #5