2017 is going to be a difficult year. Smaller ecommerce and brick-and-mortar retailers will be squeezed out by the bigger players. Amazon will continue its push to stock the most profitable items, drive down prices on fast moving items, and encourage more suppliers to sell directly on Amazon rather than through independent retailers.
With the ever-increasing trend of consumers purchasing online and with the growing dominance of Amazon and Ebay, why should a manufacturer continue to supply retailers at deep discounts when they could sell direct to the public for just Amazon’s commission? They don’t even need a fulfillment department; they can use Fulfillment by Amazon.
Traditionally, retailers were essential in the sales chain. We promoted the products, and provided a process for consumers to see them and appreciate them. Retailers provided a nationwide and, indeed, an international window for the products. Consumers knew about a product only if they saw it in a retail shop — online or brick-and-mortar.
Retailers were the main distribution method of products. No manufacturer would threaten this supply chain or damage the end retailers when the vast majority of their products was sold by retailers.
But now, the retailer is less relevant. As online trading increases, fewer products will be sold in retail stores. Sooner or later, many manufacturers will see that online sales are the most profitable and brick-and-mortar sales are no longer worth the cost. Indeed manufacturers could come to believe that they can make more money by selling directly on Amazon rather than independent retailers.
To be sure, some manufacturers will make the opposite decision. They do not want to be limited to just one sales outlet, no matter how profitable, or they do not want their brand cheapened by the perceived race to the bottom on prices.
Regardless, in the end, retailers will be squeezed by this and some will fail.
There is no simple, glib solution to this. Amazon is a low-price platform. This reduces margins and allows hobby sellers to undercut any retailer. It also provides an outlet for manufacturers to cut out the middleman if they choose.
A future for box shifters?
Possible Amazon strategies for independent retailers include:
- Find something to sell that people want but no one but you can supply. Your own brand would be ideal. This is easier said than done.
- Buy up bankrupt stock at a huge discount and thus compete at low prices. It’s difficult to build a long-term business in this manner, however.
- Consider using Fulfillment by Amazon, cut your costs, and let Amazon do all the work.
The problem is that if any of those ideas works and is profitable, others will copy you. Indeed even Amazon could copy you.
So the ultimate solution is to reduce your dependency on Amazon. Amazon attracts the price-conscious consumer. A successful ecommerce retailer wants a repeat customer who seeks value, not necessarily low prices.
For example, witness the growth of men’s shaving sites. They sell the idea of quality. (No one wants a blunt razor!) They make it easy for regular orders, even standing orders.
Another example is pet food. I buy food for my dogs from an online pet shop that emphasizes quality. This is a constant demand and I am a repeat customer.
These kinds of retailers will grow. They sell something that consumers will buy repeatedly. A repeat customer requires no search engine optimization and no marketing. If the retailer offers good service and good value, the customer will likely come back. The generic online retailer that is indistinguishable from a box shifter is doomed.