COVID-19 has catapulted the e-commerce landscape five to ten years into the future, according to industry insiders. In the first quarter of 2020 which ended on March 31st, consumers spent $146.47 billion online with U.S. retailers, up 14.5% from $127.89 billion for the same period the prior year.
Q2 will show a much bigger growth in e-commerce and we can see the first sign in the data. U.S. daily e-commerce sales grew 49% when comparing it to April 1-23 to sales at the beginning of March, before the pandemic gained widespread attention. Online spending represented 16.2% of total retail sales for the quarter, up from 15.0% for the same period in 2019 and the second-highest online share for any quarter in history, after 17.8% in Q4 2019.
According to Mr. Todd Snively of Expert University, a long time Amazon expert, Amazon was one of the clear winners in this e-commerce boom. He went on to say that between March 1 and April 30, total daily visits on Amazon.com increased by 17.1%, to 83.96 million daily visits. Amazon recently announced its 2020 first-quarter results confirming that total earnings for the three months ended March 31 were exceptionally strong — about $33 million an hour in sales.
Even before the COVID-19 outbreak, Amazon’s 2020 U.S. e-commerce sales were forecasted to 17.2 percent to $261 billion resulting in a projected market share for Amazon of 38.7 percent in 2020 compared to 37.3 percent in 2019. The power of Amazon lies in part with the fact that it is not just an e-commerce store but also a platform, or Marketplace, for other sellers.
Today more than 50% of all Amazon sales come from third-party sellers like Mr. Todd Snively, who while generating tens of millions of dollars on Amazon’s marketplace over the last ten years, has been busier than ever training other name brand companies, and everyday folks, who want to know the right way to sell on Amazon, especially in light of this recent boom through Expert University.
Amazon sells everything to everyone. More than 350 million different products are available to buy on the platform. The Amazon customer base is all-consuming. Just consider that 95 million people have an Amazon Prime membership in the US and Amazon Prime members spend on average $1.4K each year.
There are four ways to attempt to sell on Amazon. They are retail arbitrage, private label, wholesale distribution, and drop-shipping. We are not going to discuss drop-shipping, because, for the most part, it is not allowed on Amazon. Let’s start with “Private Label”.
During our interview with Mr. Snively, he explained that private label sellers source their products from platforms like Alibaba in China and resell them under their own brand name.
This can very very lucrative, but also very expensive to do correctly and very, very risky. The challenge in private label lies with the brand you are creating. It takes a lot of time and energy to create a brand name that resonates with consumers. If at any point your logo, packaging, or product isn’t top-notch, the reputation you’ve worked so hard to create can be harmed beyond repair. Not only that, but if you think about it, you’re trying to get consumers to trust a brand that they have not only never heard of, but has zero consumer reviews, anywhere. That alone makes it a daunting task.
Retail arbitrage is reselling name brand products you bought in a physical store like Big Lots, Walmart, or any other store you can walk into. This can be the most time-consuming of the Amazon business models, as you have to physically find and restock inventory all of the time, generally in small quantities. As Mr. Snively points out, it’s truly not a “real” business; more like a hobby that maybe breaks even, sometimes.
When you try to do retail arbitrage with an online store, it becomes “Online Arbitrage”. This model is very similar to retail arbitrage, except, you don’t physically have to go to a store. All of your sourcing is done online. This model actually is just as flawed, if not more so, then retail arbitrage. Both arbitrage models share some of the same shortcomings. First, you will be paying sales tax on your purchases, which can be significant and cut into profits unnecessarily.
But, the real problem with the arbitrage models is the issue of authenticity. Amazon, over the years, has received some horrifically bad press on the issue of customers receiving something other than what they thought they were getting. The selling of inauthentic products is a huge problem because it’s so much more profitable for the seller. Todd Snively is a recognized expert on intellectual property issues with respect to the Amazon marketplace. When we caught up with him at his beach home in Palmas Del Mar, Puerto Rico, we asked him to explain.
“It’s not so much that the arbitrage seller is selling products that are inauthentic, or counterfeit, the issue is they are unable to prove they are not authentic. It comes down to what Amazon will accept as proof of authenticity, and in most cases, receipts from physical or online retail stores, will not suffice. Amazon wants a true paper trail that generally starts with you providing Amazon with an unaltered, authentic invoice from a recognized wholesale distribution source.”
Mr. Snively went on to say that this is exactly why the wholesale distribution model is the best model to use when you are getting started with selling on Amazon.
Wholesale distribution is the same business model as brick and mortar stores in the sense that you are purchasing from an authorized source which then causes you to become an official reseller for the brand. The authorized source is usually the brand itself (buying direct), or a wholesale distributor that has been authorized by the brand to resell their products.
Selling name brand products on Amazon is the best way to jump on the Amazon opportunity. Amazon is willing to warehouse the products you send them, pack and ship the products that sell, and perform all the customer service, for you. This is their famous Fulfilled by Amazon (FBA) program. If you want to fulfill the orders yourself, you certainly can. That process is called Fulfilled by Merchant (FBM). Most products sold on the Amazon marketplace are purchased by customers that are Amazon Prime members. Amazon Prime membership is what allows customers to take advantage of free two-day shipping. The products you send to an FBA warehouse are all sold under the Prime badge and the customers receive free two-day shipping.
What we found surprising is that Amazon actually wants multiple sellers on every product. They encourage this because they’ve found that it provides for a better buying experience for the customers. Products tend to stay in stock better, prices stay in check, etc. For the competitive sellers all selling the same product, Amazon rewards them by dividing all the sales of that product amongst them. That’s not every seller, just what Amazon determines to be “competitive sellers”.
Another bonus to the wholesale model, name brands do not require marketing spend and you will know upfront roughly how many units are sold each month, along with how competitive sellers and with some simple math you can see what your “cut” is going to be. This has to be one of the most misunderstood models of selling on Amazon. Todd Snively said that if you truly understand the concept of competitive sellers, along with buy box rotation, you’ll run, not walk, to start selling on Amazon. The “trick” at that point is figuring out which products to sell, and where to get them from.
Todd’s company, Expert University teaches the Wholesale buy box model so that you can get expert help without fierce competition. Name brands are a real online business and an opportunity that should not be missed. As Kevin O’Leary, Mr. Wonderful from TV’s Shark Tank, confirmed in his testimonial for Expert University, “Expert University helps you learn how to optimize selling on Amazon. Discover brand name products that need more sellers and maximize a platform that is growing like a weed because people have to use it.”
Mr. Wonderful, couldn’t agree with you any more.