FBA stands for Fulfilment by Amazon, which has opened new ways for Amazon sellers who had difficulties storing and shipping their products. An Amazon FBA private label product is manufactured by a third party and is solely under the brand name at Amazon. Currently, many businesses are operating under FBA, and the demand for this service is increasing intensively. It has raised the interest of the FBA aggregators, aka acquirers or roll-ups, to buy the FBA private labels.
According to Marketplace Pulse, the competition is intensifying for acquiring Amazon’s marketplace sellers, with top aggregators investing millions in the investment in profitable businesses. Some statistics include the earning of 100 million dollars by Thrasio in April 2020 while Perch gets $8 million while acquiring the Amazon brand. Thrasio again made $260 million in July and reached the uniform status by over $1 billion valuations. In May 2021, a Berlin Razor group earned $400 million, and Perch raised $775 million while buying the Amazon sellers. Similarly, there are many success stories among the Amazon aggregators which can be seen.
These aggregators also tend to purchase the FBA businesses and make them more profitable for the future. The examples of the top FBA aggregators like Thrasio, Heyday, Perch, Cap Hills brand, and others reveal that the market of FBA aggregators is a hot market at present with a range of opportunities. The opportunities and challenges for FBA aggregators are the following.
Opportunities for FBA aggregators
There can be many opportunities ahead for FBA aggregators, which they need to realize to make profitable investments for their investors. These FBA aggregators have a lot of pressure to make the right decisions based on the market insights. Therefore, it is important that they check step by step amazon fba guide to do it correctly. Here are a few opportunities that the FBA aggregators need to know while making FBA business acquisitions.
1. High profitability
There is no right estimate on how much the average FBA seller earns. A report by Jungle Scout in 2021 showed that an average seller who has been selling in the market for less than two years earns over $42,000 at Amazon. The report also revealed that 70% of the Amazon sellers make at least $1,000 every month. Since most of the businesses on Amazon have shifted to FBA account, this shows that FBA aggregators can expect large profits from acquiring the FBA business.
According to PickFu, most Amazon sellers never breach $100,000 in lifetime sales. It includes over 57% of the businesses. It is because it requires the resources and capabilities to reach this stage. It makes selling the FBA business to FBA aggregators more appealing. Thus, FBA aggregators need to use this fear to acquire the business which they perceive will have more success in the future.
Amazon is a very profitable platform for aggregators to invest in, in general as well. It is because, according to a report by eMarketer, more than 50% of US consumers go to Amazon at first while they start shopping for an online product. It means that FBA aggregators can make a lot of money with this platform.
2. Reducing the unnecessary costs
One can say that the brand can maximize the profit if the business makes high sales at a reduced cost. In this case, aggregators need to understand how owning the FBA business can help them in minimizing their expenses by improving their cost structure. Amazon FBA sellers take the services of Amazon by sending their products to the Amazon fulfillment center. Amazon stores the product and takes care of the packaging, shipment, and delivery of that product to the customer.
As Amazon aggregators acquire the brands and manage multiple businesses simultaneously, an FBA model can help them deploy the economies of scale by making the cheaper per business investment as they do not have to manage the inventory, deliveries, and packaging. Thus, owning an FBA business not only helps in saving the cost but also reduces the effort made by the aggregators in managing the operations of the new business,
3. Market competition
There is good market competition in the FBA market, but this is not a challenge for the aggregators. It is because the aggregators can search the competitors in the market and look for new ways to serve the customers in a better way.
Challenges for FBA aggregators
Alongside the business opportunities which come with the FBA aggregation, there also comes a series of challenges for the aggregators, which have been discussed in the following sections.
1. Oversaturation in the market
The biggest challenge for the FBA aggregators is the oversaturation in the market. Many aggregator companies are investing in Amazon marketing and advertising. They can eventually outprice the mom-and-pop seller, which can bankrupt each other. The aggregators should understand such factors as they need to keep an eye on their competitors to succeed in the market.
In addition, it can also be said that there is also high saturation in the FBA market. There are 57% of the businesses on Amazon working on the FBA only business model as the data of Jungle Scout. However, after the pandemic, when the Amazon warehouses had some limitations, some businesses also shifted towards the FBM model.
Still, due to high sellers in the FBA market, it isn’t easy to get the cost leadership. It means that FBA aggregators still need to invest heavily in forming successful business strategies.
2. Post-acquisition issues
There can be many challenges in the post-acquisition process. For example, it can take time for the business in the post-acquisition integration. The existing system architecture transformation into automated processes can be time-consuming, which can impact the company’s sales volume.
The aggregators might also have to struggle to improve the business position concerning Amazon’s Best Seller Rank (BSR). It can be because, in the beginning, there is a lot to learn about the new business due to the complex processes of marketing, product sourcing, logistics, and much more. It can also cause businesses to slow down initially and reduce sales. The aggregators need to ensure the supply chain continuity during this entire process.
The company also needs to make sure that the acquired brand is abiding by the terms and conditions of Amazon. It can also be a time-consuming process when many consultants gather to evaluate the company’s practices concerning the regulations of Amazon. Thus, the post-acquisition process can be time-consuming and challenging for the aggregators.
3. Scaling operations
If the company’s existing system is not able to keep up with the rapidly growing operations, it can result in bottlenecks. The systems need to support the processing of the large volume and should be compatible with the strategies of the FBA aggregator. If the scaling of operations is challenging, it can result in quick failure in the market with an intense rivalry.
In short, the major opportunities for the FBA aggregators includes high profitability, reduction of unnecessary costs, and favourable market competition. This allows the FBA aggregators to achieve high success in the market. The challenges for FBA aggregators include high saturation in the market, issues after the acquisitions, and issues in scaling the new acquired business with the aggregator’s business. These challenges need to be addressed for high success rate.