Tuesday, August 30, 2016

Turnover Tuesdays - Amazon Restrictions and the Future State of Amazon Selling

For those who are not familiar, I started a series a while back called Turnover Tuesdays. Every Tuesday I like to highlight one item that I have resold. This will include profitable and non profitable sales. I hope that there is always something to learn.

The previous posts in the series can be found at the bottom of this post.

Since I am a prophet, I decided to share my incite into the future direction of selling on Amazon.  Obviously I'm kidding, I wouldn't give away trade secrets like that.

On a more serious note, there have been some major (Minor? More on that later) changes for certain brands that a few people have noticed.  These brand restrictions may be the start of a serious negative trend for sellers that can vastly affect our bottom lines.

The Amazon Balancing Act - Sellers vs. Buyers

Amazon is an amazing marketplace for a number of reasons but the main reason is because they have many millions of customers who are far more loyal to them than the average retailer, mostly because of the prime ecosystem, perception of great prices and great customer experience.  As opposed to eBay, customers often think they are buying everything directly from Amazon and therefore sure that they are receiving pristine items that are free from counterfeit.  To a customer, buying from Amazon is like buying from Staples.  Buying from eBay is closer to craig's list except with seller ratings and some larger brands on eBay.

That perception of the difference between Amazon and eBay is a major one and it's worth many millions of dollars.

For that reason, Amazon has a large incentive to move strongly against those who counterfeit products.

Trevor of Tagging Miles has a similar article in which he points to an article from Yahoo about the counterfeit problem, here is an in depth article from CNBC about the same topic.  Trevor says he noticed Yeti listings from sellers who just started selling that were significantly cheaper.  I actually bought some and they were indeed fake.  I started an A-to-Z claim and got all my money back but I'm not sure that the average customer would be able to tell.

When there is greater competition on Amazon, prices drop which is great for customers but competition from knockoffs is supposed to be eBay territory.  That will erode customer loyalty quickly.

Soon after that incident many Yeti listings got restricted and you need a letter from the manufacturer or an authorized distributor in order to sell Yeti mugs.  That's great for fighting counterfeits, not as great for small time sellers who don't have deals with manufacturers.

Amazon tries to make it as easy as possible to sell on their platform.  More sellers equals lower prices for customers and more customer loyalty but if it becomes too easy and counterfeiters come along, the pendulum swings in the other directions.

New Amazon Brand Restrictions - With a $1,000 Twist

There are a bunch of new brand restrictions on Amazon.  That randomly happens and we adjust accordingly.  The problem is that this time, Amazon is making it much more expensive to get ungated in these brands.

Instead of just a letter from the manufacturer or invoices from an authorized distributor, Amazon is also asking for a non-refundable $1,000 fee.

The brands that I've personally seen involved in this so far are Lego and Mophie, Adidas and there are quite a few others,

Here is what it will look like:

$1,000 to start selling something!  You have to make $1,000 of profit to break even.  That could be a ton of sales.

I understand requiring letters from manufacturers to ensure legitimacy of products.  I cannot for the life of me understand this $1,000 cash-grab.  Maybe it is the price of enforcement?  I really don't know but it quite disconcerting indeed.   Remember this is a $1,000 per brand.  That can really add up if a few brands get restricted.  (Are the brands seeing any of that money?)

Silver Lining

It seems as though in this new round of restrictions if you have sold the brand previously you are not restricted.  If that is you, you may have an advantage going forward of new sellers not being introduced to the product, at least until the rules change again.

I have to say that I am quite surprised with the timing of all of this.  Quarter 4 is rapidly approaching.  It's a time when Amazon is constantly running out of inventory since they just can't keep up with the demand.  They rely on their sellers to keep the sales going.  They are seriously hurting themselves and their customers by restricting their sellers so widely.  They may think it's worth it for the greater good.

Is this a Trend?

The biggest question which is left unanswered is whether this is a trend that will continue with more brand restrictions and ransom payments or this is a part of the regular Amazon restriction process with the $1,000 twist.

One Amazon Blog predicts that the face of Amazon selling is going to change radically very soon.  Could be.  I really don't know but I'm not planning for that yet.  You can read a thought out response to that article here from Ryan of Online Selling Experiment.

Rethinking Amazon Selling Going Forward

There are a couple of things you can do to protect yourself.  One is to add every item to your inventory before you purchase (or scan the item with FBA app for retail arbitrage).  This really only addresses the symptoms of the problem.  You are less likely to buy restricted items.  It doesn't help with the fact you may be losing your massive gravy train with one fell Amazon restriction.

It may be time to think about distributor/wholesaler deals.  That is a way to really protect against this wave of restrictions.

Once you have distributor deals in place you may actually want more restrictions, ironically, to avoid deal chasers killing your golden goose.

Lately, I've been chasing a lot more one time deals (to pretty good success) and I've lost some focus on the distributor deals.  This could be the wake up call I need to get back on the horse again.