Sales of third party product units are growing faster than units shipped by Amazon. According to Tom Szkutak, Amazon’s Chief Financial Officer, units sales of products sold by third-party sellers on Amazon grew by over 40% in 2012, but units sold by and shipped by Amazon grew only 32%. Nearly 40% of all product units sold on Amazon last year came from third-party sellers. While these numbers are impressive, Amazon has every incentive to boost third-party sales even more.
Five Reasons for Long-Term Growth in Third-Party Sales at Amazon
- Profit. Pure Profit. - Third party sales commissions are profitable for Amazon. When sellers supply the inventory and ship the product, Amazon reaps the rewards of profitable sales commission without taking on huge risks with slow-moving inventory that can be costly to locate, warehouse and distribute.
- The Widest River in the World. - By enhancing its own catalog with third party listings, Amazon gains a reputation among consumers as the retailer for retailer who carries everything. Increasing the depth and breadth of their total Fulfillment By Amazon (FBA) product units presents an incredible value add for Amazon customers who can avoid paying shipping on products sourced by Amazon and those that come from other sources.
- Location. Location. Location. - As the 9th most visited website on Earth, Amazon.com sees lots of traffic. Third-party merchants rise to meet pent up demand from the millions of daily visitors seeking products they can’t find locally.
- A Place for Mom and Pop. - The low barrier to entry at Amazon’s Marketplace enables even the tiniest shoestring operation to sell their wares on the most popular shopping site in the world. Small business owners who strike out with their own website may be outbid and outclassed in getting search engine traffic to their websites, but Amazon does most of the hard work for them. Sellers who use FBA can also avail themselves of Amazon’s economy of scale in distribution costs.
- The Economy, Stupid. - Even during times of economic stagnation, overall sales at Amazon continue to grow because, at Amazon, price is king. Why should consumers undertake extensive price comparisons checking several websites for the same product when Amazon does the price comparison work for them? Despite complaints from some sellers that Amazon self-sources its best selling Marketplace products, third-party merchants with the lowest offer can sell hundreds of units per day on highly coveted items. This opportunity helps small entrepreneurs make substantial income via retail arbitrage.
As the Amazon ecosystem continues to grow with offerings like Amazon Web Service and Prime Video content, there may be certain areas that Marketplace sellers can’t break into. Also, the third-party marketplace is more competitive than ever, but this is a good thing. Variety and competition attract consumers, which increase sales potential. The likelihood that Marketplace sellers will expand rapidly over the next few several years remains strong.
If you’ve been selling on Amazon for more than a year, share your perspective on third-party sales growth. Do you see Szkutak’s numbers represented by increased dollars in your pocket?