How This Trip Season Will Be Fully completely different for Amazon Sellers in Every Class | E-Commerce
The holiday season is big business for e-commerce. The year-over-year metrics show massive increases for online sellers, especially during the pandemic-related 2020, with sales up a whopping 45 percent compared to 2019.
At the heart of that surge was Amazon, whose global sales grew by more than 50 percent and more than eight million items were shipped.
But this year will be very different on each platform. Brands should focus more on profitability than volume, because while Amazon is set to see record sales again, the game has changed as much as it has any year before.
Let’s examine why …
Amazon is fighting for fulfillment
The rapid rise of e-commerce has consequences – even for high-performing fulfillment companies like Amazon.
Like many US companies, Amazon is struggling to hire new employees – and despite investing $ 35 billion in its fulfillment capabilities, Amazon can’t build warehouses fast enough. All large marketplaces are still heavily dependent on a network of delivery partners, many of whom have logistical and financial challenges in order to achieve the high goal of shorter delivery times
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It should come as no surprise, then, that Amazon is limiting storage space and reducing the number of popular items that third-party sellers using Fulfillment by Amazon (FBA) can ship to their fulfillment centers.
For example, one retailer reported that they could only ship 230 units of a fast-selling novel board game to an Amazon warehouse, while in the past they’d sent thousands. Others found that Amazon took longer and longer to check in newly shipped goods.
This is a massive problem for sellers who could be missing out on potential sales volumes during the busiest time of the year. But selling out has other consequences. Amazon sees low stock levels as a sign of unreliability and penalizes the seller with a lower ranking in the search lists – a potential death knell for many brands, even if the restriction comes from Amazon itself.
A low inventory plus a low ranking means lower sales, lost sales and the potential loss of the retailer’s Amazon bestseller rank based on units sold.
Costs keep rising
Another reason focusing on the number of units sold is particularly problematic this holiday season is because sellers face significantly increasing business costs.
In the past year, supply chain issues have seen the price of shipping Made in China goods rise 500 percent in inventory.
But that’s not all. The cost of marketing these goods has also skyrocketed. As established brands invest more of their marketing budget in Amazon, Google Ads, and social media ads, auction-based prices for these products have grown exponentially, driving up customer acquisition costs for brands already in question.
How brands and sellers can prepare for a unique Christmas season
While online shopping will still be an important channel this holiday season, third party sellers who have benefited from the pandemic-induced e-commerce highs need to be realistic about how much slower and less profitable this holiday season could be compared to 2020.
In this environment, is it a good strategy to discount products? Every other year maybe. But 2021 is unique. Third party vendors have a flurry of market forces and post-pandemic disruptions countering them. Even if playing the discount game leads to double sales, rising costs could easily drive margins into negative territory.
Because of this, profitability trumps sales this holiday season. In preparation, top brands need to reconfigure their typical Christmas sales strategy to focus on four key areas:
1. Have a fulfillment backup plan
Brands need to find ways to bypass Amazon’s inventory limits and fulfillment challenges. One way to do this is to diversify your fulfillment options. For example, if you have a backup plan such as listing seasonal high-demand products under Amazon’s Fulfillment by Merchant (FBM) option, make sure sellers can continue to ship goods directly to buyers from their own warehouses. This also applies to other marketplaces.
2. Combat rising advertising costs by finding a profitable niche
With advertising costs soaring, retailers need to get creative to secure a spot at the top of Amazon’s search lists. They can do this by finding a tiny corner of Amazon, Walmart, and other marketplaces to dominate by aggressively targeting high-volume niche search terms.
For example, a seller of synthetic free baby toys may stand out from the crowd by using terms such as “non-toxic baby toys”, “plastic-free toys”, and “eco-friendly toys for babies”. As conversions and sales grow, Amazon’s algorithm will organically rank the product and the seller will be in a better position to compete on more common terms like “toys for babies”.
While it’s important to stand out, it’s equally important to realize where your rankings are underperforming. Experimenting with different search listings is key to finding a successful niche, but it’s important to quickly change search terms if something doesn’t work to cope with rising ad costs.
3. Be realistic about supply chain issues
In the current situation, retailers can no longer afford to be dependent on a single supplier for 100 percent of their goods.
To compensate for delivery bottlenecks and reduce rising costs, sellers should consider purchasing goods from US or Mexican suppliers. This can take some time and may not be achieved before the holidays, but it is advisable to develop a strategy to diversify suppliers, especially since many problems in the supply chain will persist into the next year.
4. Slow demand to increase profitability
The best strategy for brands affected by supply chain issues and increased shipping costs is to curb demand and increase profitability.
Sellers should avoid the discount game and avoid costly ad purchases. Brands also need to be careful not to overlay merchandise that doesn’t sell easily after the holidays and avoid running out of inventory of the items buyers want – a surefire way of damaging the brand’s reputation.
The key to a successful 2021 Christmas season for brands is to focus on doubling their profits rather than on sales.
Businesses need to recognize the potential external factors that could plague their brand this holiday season and take control of factors that can influence them: inventory holdings, dominant niche search categories, and preparation for supply chain issues and slowdowns in demand. In this way, brands can not only survive the Christmas season 2021, but also emerge stronger and more resilient on the other hand.