Why More Sellers Are Diversifying Away from Amazon

About the author - Wayne is a management accountant who forged a 15-year career with tech heavyweight Hewlett Packard. He is now the COO and resident eCommerce accounting expert at Bean Ninjas. When Wayne isn’t managing a global team and equipping eCommerce entrepreneurs with the financial tools they need to enjoy business success and lifestyle freedom, he’s being an everyday superhero to his wife and five children.

As 2020 rages on with global health and financial crises, we decided to take a pulse check on the state of eCommerce. Based on our observations and what we see in the industry, the amount of sellers who consider Amazon to be their primary sales channel is decreasing these days.

What’s driving this change? We’ll get into that and more as we take a look at eCommerce businesses’ shifting sentiment regarding Amazon.

Pro Tip: To learn about other insights uncovered in our survey, check out our eCommerce Recession Impact Report.

Why The Change of Heart?

While we admit that our survey didn’t contain a large amount of FBA sellers, we were still surprised to learn how little eCommerce businesses rely on Amazon these days.

We aren’t alone. A May 2020 report by eCommerceFuel reveals that among the hundreds of 7- and 8-figure eCommerce companies they polled, non-Amazon sellers outpaced Amazon sellers in revenue growth in 2019. Additionally, the number of Amazon merchants and percent of sales coming from Amazon flattened from 2018 to 2019.

Walmart Enters Space, Sets Sights on Amazon

The marketing world has taken notice as well.

“Many larger brands are now inquiring about growing their sales on Walmart,” said Kiri Masters of Bobsled Marketing, pointing to their ability to grow their appeal to sellers and customers alike. “While Amazon should be the port of call for most brands due to their continued dominance, Walmart could be an interesting platform to get in on early.”

One of the most notable moves by Walmart was their partnership with Shopify, announced in June. Shopify sellers dominated our survey. They now stand the chance of becoming among the first 1,200 businesses selected to appear before Walmart Marketplace’s more than 120 million visitors a month.

Considered a direct shot at Amazon, the Marketplace already has opened its free 2-day shipping third-party sellers and a time when COVID-19 is sending customers to buy online more than ever before.

Eric Bandholz, founder of Beardbrand, echoed the “bye, Amazon” sentiment in a recent Tweet, saying “It’s so nice to have a business independent of Amazon.”

To understand the discontentment, we need to go back to late 2018.

“Anecdotally I’ve heard a major shift in the discussion surrounding Amazon over the last 12-18 months, ’’ said Andrew Youderian, founder of eCommerce Fuel. “Amazon seems to be getting more cutthroat, while domestic and foreign sellers—as well as Amazon itself with its own product lines—are crowding the marketplace.”

Walmart has no plans to stop competing with Amazon, if its July 2020 announcement of Walmart+ was any indication. Intended to compete with Amazon Prime, the $98 a year subscription (versus Amazon’s $119 a year) includes same-day service and a bevy member perks.

If Walmart’s partnership with Shopify is as mutually beneficial as it has the potential to be, Amazon may no longer be the only game in town that can offer customers fast access to a wider variety of products.

Amazon’s Counterfeit Problem

As Amazon tries to tame their counterfeit problem to please customers and consumer advocacy groups, the price comes at the risk of losing merchants. This started in 2018, which caused the company to double down on adding merchants even if they didn’t have the brand’s authorization to sell their products.

In addition to competing with Amazon’s counterfeit regulations, horror stories have emerged of expensive legal battles between sellers and those who counterfeit their items. Fast-forward to July 2020, when the newly-formed Amazon’s Counterfeit Crimes Unit was introduced and the company announced it would start listing U.S. sellers’ names and addresses.

COVID-19 & FBAs

This is paired with pandemic-induced inventory and fulfillment issues that have challenged sellers, including “quantity restrictions, high fees, and complex rules for sellers using FBA.” Sellers are increasingly challenged to keep up with constantly changing policies and fee structures in a highly competitive environment.

“Fulfilment consistency built Amazon; without it, the marketplace would have never become an integral part. But there is a limit to how many million square feet of warehousing space a single company can manage,” said Joe Kaziukenas, founder of Marketplace Pulse. And there is a limit to how many small businesses can fit into the ever-increasing requirements.”

What Does This Mean Looking Ahead?

We predict this migration away from Amazon to continue, especially as brands continue to see heightened restrictions that were already an issue pre-COVID-19, not to mention the competition and counterfeit problems.

Indirectly, public opinion of Amazon also could tip the scales as headlines about poor working conditions have not been a good look.

Walmart & Shopify Not The Only Threat

As shippers continue to expand their offerings, sellers may try to compete with major retailers by offering their own shipping options. A recent FedEx campaign highlights the partnerships shippers and sellers are making directly, signalling that shippers want their direct business.

Meanwhile, as pandemic lockdowns continue to hobble or shutter local mom-and-pops, the “shop local” may be gaining steam.

“This pandemic moment is supercharging society’s shop local mindset and highlighting the critical importance of small businesses in our economic makeup,” said Matt Rosetti, co-owner of Brooklyn Running, tells RetailWire.

Ernst & Young reports that 42% of shoppers say the pandemic will change the way they shop, 34% saying they would pay more for local products.

Conclusion

The pandemic has served up an interesting time for many eCommerce sellers, who’ve experienced massive sustainability or upticks during the crisis. The way people have shopped has forever changed, and more than ever it’s a good time to be in the eCommerce business.

Emerging developments such as the Walmart and Shopify partnership combined with growing discontent among Amazon sellers means more options, whether that’s finding another retail giant to work with or to assert more independence. As shippers continue to innovate new ways to work with sellers, and sellers ponder the impact of a possible “shop local” resurgence, it’s anyone’s what our next survey will uncover.