Amazon selling platform can boost small firms, but comes at a price

Amazon is an undeniable powerhouse in online retail, representing more than 40 percent of all U.S. e-commerce sales, so for many companies it pays to have a presence there.

But access to the platform's potential to boost sales doesn't come without a price.

With growing competition from all sides, sellers have to be even more strategic about what they sell on Amazon and pay attention to some key changes for 2018 including an increase in third-party seller fees in certain categories,  such as apparel.

Increases “could suggest Amazon feels empowered to raise rates as they grow their third-party seller business,” says Simeon Siegel, a senior retail analyst with Manhattan-based Instinet LLC. “It could be a signal that Amazon may raise other product category rates going forward.”  

On the other hand, it could also be Amazon passing the higher costs of selling apparel online to customers, he explains, noting items like apparel have higher customer return rates. This is also true for the other categories impacted, which include accessories, shoes, handbags and sunglasses.

“They’re more discretionary fashion-type purchases,”  Siegel says.

Among the increases, seller referral fees  paid to Amazon for clothing and accessories are rising from 15 percent of the sale to 17 percent in April.     

Conversely, in February referral fees for jewelry items sold above a price threshold of $250 declined for one year, which may be an attempt by Amazon to attract more higher-end sellers in this category.

Amazon declined to comment on its fees. 

Still, despite certain increases, generally speaking “there’s more benefit to being on Amazon than not being on Amazon,” says Sucharita Kodali, a vice president and principal analyst at Cambridge, Massachusetts-based Forrester Research.

But the marketplace is competitive and not just with other sellers, but with Amazon itself, which already has its own house brand, AmazonBasics, and also owns other private label brands that don’t bear its name.

Expansion of its private label brands is inevitable, Kodali says.

“They have a lot of data and a huge ecosystem of manufacturers who virtually make any type of product they want,” she says.

That shouldn’t stop entrepreneurs from selling on Amazon, but they must maximize the way they sell their products.

They should optimize keywords within their product listings so their items will appear in relevant searches, says Nicole Larrauri, president of EGC Group, a marketing and digital services firm in Melville and Manhattan that launched a dedicated Amazon Marketing Services Division last year.

Beyond keywords, the Amazon ranking algorithm takes other factors into consideration such as total click-throughs (the number of times someone clicks on a business' Amazon product listing page), conversion rates (the percentage of people who looked at the product listing and then actually purchased the item), reviews, and how much you have sold, she says.

Good product photography is also critical, says Larrauri, noting it pays to use multiple images.

Jon Klein, president of Huntington-based Kantian Skincare, which has been selling an anti-acne product line, Neutralyze, on Amazon since 2015, understands this.

The firm uses eight images on its product page, and Amazon also recently allowed it to start using video in its listing, a feature that’s still in a test phase..

Kantian invests in promoting its product to rank high in searches by spending about $500 to $750 a day through Amazon’s various ad units and up to another $500 a day on Facebook ads, Klein says.

“If you’re an entrepreneur, you've got to keep hustling,” Kodali says.

Keeping abreast of changes to Amazon's fees and policies is key.  Among changes Amazon sellers can anticipate this year is the introduction of an Inventory Performance Index for those sellers that use Amazon for "fulfillment."

Beginning July 1, “we may limit access to storage" for sellers whose Inventory Performance Index falls below a certain threshold, Amazon said in an email to sellers. The change isn’t expected to impact the bulk of sellers.

In 2017, "Fulfillment by Amazon stored, picked, packed, and shipped billions of items to customers around the world on behalf of sellers," Amazon said in a statement. "As we continue to grow and support more sellers that desire to make their products Prime-eligible, we are introducing changes that will help us more efficiently receive inventory and deliver products to customers.”