Is e-commerce a good business? Can a company consistently ship ~$10 parcels with free delivery within 24 hours and make money? These questions are resurfacing as Amazon’s Retail profitability plunges even for its most mature market:
E-commerce profitability seems to be the center of the argument for AMZN sceptics we speak to. Investors question whether heavy investments in fulfilment centers will yield sufficient returns.
Although on the surface the numbers look challenged, there is a different way to frame Amazon’s progress over the last few years: it’s that of an infrastructure company, not a retailer. Through this lens, AMZN’s underlying earning power has significantly improved over the last 4 years.
This lens provides a new way of framing AMZN Retail, or more specifically “non-AWS Amazon”, and its underlying economics. After interviewing an AMZN 3P seller, with 16 years experience scaling small brands and running AMZN selling accounts of large Fortune 100 brands, we explore the history of AMZN’s Retail Marketplace Strategy and underlying economics.
Over the last year, AMZN hasn’t been the only one struggling to make e-commerce profitable. Its sellers are too:
With Amazon FBA, it’s 15% listing fee, 15% FBA fee, plus your storage fees, plus various return fees and things like that; hidden fees. They raised the fees this year, in January, then they implemented a fuel surcharge, and then they just implemented a surcharge for the fourth quarter for warehouse expansion…so all these fees build up to the point where we have one client who was on FBA for years and we pulled them off FBA. They can actually build their own warehouse, staff it, handle their own pick, pack and ship for less money than they can with FBA. - Current Amazon FBA Seller
When sellers hit $1-2m in sales on AMZN, it makes sense to fulfill yourself directly. On average, FBA sellers are paying 50-60% of sales to AMZN. This excludes the product cost. A sellers’ COGS has to be below 35-45% of sales to earn money via FBA.
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