Despite a thorough and exhaustive search on credible avenues of information, our research team was unable to provide a detailed analysis of the risks associated with the sustainability of businesses who sell exclusively or almost exclusively on the Amazon marketplace. We could not arrive at a conclusion whether this business model is considered risky or sustainable and conducive to growth for the business based on the scarcely available information. However, we were able to unearth some risks associated with selling on the Amazon marketplace. Some major risks include complicated procedures and increasing fees, highly competitive selling environment, and the risk of inventory being deemed unsaleable or restricted at any point in time. We have presented a high-level overview of these risks in the findings section.
risk of inventory being deemed unsaleable or restricted at any point in time
- Amazon works closely with large and established manufacturers and brands. If a manufacturer decides that they don't want third-party sellers listing their products on Amazon, they can have Amazon deem their products unsaleable or restricted at any time.
Complicated procedures and increasing fees
- Amazon fees are nearly one-third of the sale price of the item, in addition to the monthly fee of $39.99, and the warehouse storage fees.
- Amazon intermittently offers to lower the fee they charge on each sale, provided the seller drops his product sales price. These limited-time offers are not really profitable but can help sellers sell through slow-moving inventory.
- Through its own lending group, Amazon also offers loans to sellers with good metrics. Sellers cannot request loans, they can only take advantage of a loan if Amazon decides to offer one. In addition to this, the loan amount is based on the seller's sales history.
Amazon Sellers Only Get Their Money Every Two Weeks
- When a seller sells an item on Amazon, the payment is made by direct deposit to the seller's checking account every 14 days. Only sellers with a legacy account have the option to request payments as often as every 24 hours.
Building a Positive Feedback Profile on Amazon is a time-consuming process
- Statistically, only one out of 30 buyers leave feedback on Amazon as compared to eBay where one out of every three buyers leave feedback. This means an Amazon seller needs to sell a lot of products to build up his feedback.
- The marketplace is becoming increasingly competitive with the emergence of many sellers using re-pricing software to automatically alter their prices to stay competitive.
- The re-pricing software is designed in such a way that as soon as one seller out-prices another, it sets off all other sellers' re-pricers, and a downward pricing spiral starts.
Your research team applied the following strategy
We commenced our research by scouring for the requested information on websites of Gartner, Forrester, IDC, McKinsey, Frost & Sullivan with the hope to find any research on the risks associated with selling exclusively on the Amazon marketplace. However, this research strategy was not successful because it did not yield the required results.
Upon further investigation, we could locate a report on Amazon marketplace strategy by Goat Consulting. Nevertheless, this report did not provide the perspective of an analyst review as it was published in collaboration with Amazon.
As an alternative research approach, we tried for searching the requested information on market research agencies websites with the hope to get any paywalled reports on this topic. However, this research strategy also proved futile because this topic was not covered by any research agency such as MarketsandMarkets, Transparency Research, etc.
Furthermore, we decided to broaden our search avenues to websites of other providers of e-commerce web stores such as Big Commerce and Volusion with the hope that being competitors to Amazon, these e-commerce web store providers might reveal some cons of Amazon market place which might not be otherwise readily available.
Finally, we ventured into combing through online publications such as blogs, articles by prominent authors associated with the same field of business. We ensured due diligence by individually checking the author bios to confirm their credibility. For example, we have referred to an article written by an author, speaker, and founder of Internet Income Coach, where he shares his latest tips, tricks, and strategies for starting and growing an online business. In addition to the above research strategies we also referred to business magazines such as Forbes, Inc., Entrepreneur for the requested information.