Source: Amazon.com/Circadian Optics
Are huge marketplace seller aggregators a good thing for Amazon and retail?
A number of aggregators have arrived in recent years with a goal of acquiring third-party Amazon sellers and taking them to their next level of growth. Recently, many have secured funding themselves.
On Feb. 9, Thrasio announced it raised $750,000 in equity funding just after receiving a $3 billion valuation in a debt-funding round. Founded in 2018, Thrasio has acquired nearly 100 Amazon FBA (Fulfillment by Amazon) sellers, including Vybe Percussion massage guns, Circadian Optics therapy lamps and Sdara Skincare.
With the help of its marketing and analytics know-how, Thrasio claims brands typically see a 30 percent sales increase two months after being acquired. The firm also promises the benefits of economies of scale and back-office synergies.
“If you’re somebody who’s been able to build a couple-of-million-dollars business, there comes a day when you realize you need to manage a global supply chain, and a massive marketing effort, and your own creative team, and your operations, and your legal effort,” Thrasio co-CEO Josh Silberstein, told Yahoo Finance. “And the level of complexity required to do all of those things well at the same time is not the sort of thing that you can do with a three-person team.”
Other Amazon third-party seller consolidators securing funding since last fall include Perch, Boosted Commerce, Branded E-Commerce Group, SellerX, Heyday, Razor Group and Heroes. A recent Bloomberg article indicated that about 40 Amazon aggregators have emerged in recent years.
Branded E-commerce CEO Pierre Poignant said in his company’s funding statement, “Our team will provide unmatched operations, marketing, business development and supply chain expertise, serving as the partner of choice for entrepreneurs worldwide to scale their consumer brands and delight consumers on Amazon and beyond.”
“We’re in the early days of a tectonic shift toward marketplace commerce. Just as the last decade saw the rise of Warby Parker, Dollar Shave Club and other digitally native vertical brands, this decade will see the rise of a new generation of marketplace-native brands,” said Sebastian Rymarz, CEO of Heyday, in its funding statement. “Although the shift has been a boon to entrepreneurs around the globe, most still lack the capital, tools and resources to realize their full potential.”
- Thrasio Raises (Another) $750,000,000 – Thrasio/PRNewswire
- Thrasio Tops $1 Billion in Total Capital Raised, Secures $500 million in Fresh Capital – Thrasio/PRNewswire
- Branded Raises $150 Million in Funding and Acquires 20 Top-Selling Marketplace Brands – Branded E-Commerce Group/PRNewswire
- Thrasio, which buys up Amazon third-party sellers, has rapidly raised $1.75 billion – Yahoo Finance
- Thrasio raises $750M more in equity for its Amazon roll-up play – TechCrunch
- Berlin Brands Group to invest €250 million in acquiring Amazon brands – E-Commerce News
- Heroes raises €55 million to acquire and scale Amazon brands – E-Commerce News
- SellerX raises $118M to buy up and grow Amazon marketplace businesses – SellerX
- Heyday Emerges from Stealth with $175M Series A Funding to Accelerate Marketplace-Native Brands – Heyday/PRNewswire
- Perch Announces $123.5M in New Financing to Acquire Top Performing Amazon Marketplace Products and Companies – Perch/PRNewswire
- Wall Street Is Investing Billions to Scale Tiny Mom-and-Pop Sellers on Amazon – Bloomberg
Discussion Questions
DISCUSSION QUESTIONS: What do you think of the trend of aggregators acquiring and scaling up promising third-party Amazon FBA sellers? Is the consolidation of third-party sellers a positive or negative for Amazon and other online marketplace platform operators?
Poll
BrainTrust
Perry Kramer
Managing Partner, Retail Consulting Partners
Rachelle King
Retail Industry Thought Leader
With the marketing and supply chain efficiencies of aggregators, it makes sense that they can accelerate the growth of small online retailers. It is nice for small businesses if their goal is to sell their business, but some might prefer to pay a fee for the services that aggregators offer and keep their business. Initially, as aggregators grow the businesses they acquire, it results in more fees to Amazon. However, as aggregators get bigger and they gain more power, they will likely try to start to negotiate with Amazon for a lower fee structure.
When brands offload inventory, warehousing, logistics, and customer returns to Amazon, as FBA sellers do, there is very little margin left for the brands. That’s why smart brands use FBA as one of the vehicles and not the sole business model. When an entire business model is driven by FBA, there is a limit to the profitability.
There are only a few synergies in front-end operations in marketing. The big savings are in back-office operations, but the value is more in the consolidation of product design, sourcing, and getting the product from China to the U.S. But it is exponentially harder to pull that off.
Online is not Main Street. The online marketplace is massive and to operate effectively one needs critical mass in all aspects of their business. This trend provides critical mass to the benefit of the retailer, the aggregator and Amazon.
The aggregator provides skills and resources which the smaller retailers can not provide. It makes them stronger. In the end, Amazon doesn’t want to be a retailer, they much prefer to be a mall. If that is the Amazon long-term strategy, this fits perfectly.
It offers growing SMB companies a growth opportunity and the ability to focus their energy on product and customer experience while leaving the logistics to a third party. Clearly there is an opportunity and need being filled by several companies in this space. The Thrasios of the world are almost like an online local chamber of commerce for the digital channel. The companies being acquired must be careful to enter into limited agreements and not sell their control over their innovation. I would be much happier if these groups also were able to leverage global marketplaces that are often key to entering markets in China, Russia, India and many other regions across the globe. I would be a much stronger supporter if these companies also looked to integrate with Walmart, Kroger, Meijer, Target and other mainstream retailers.
Who cares if this is good for Amazon? What matters is more opportunity for small sellers and seemingly–seemingly– aggregators give them more sales opportunities and better fulfillment possibilities. Both of which can lead to happier current customers and influence new customers.
Caution though: aggregators are not in the space to make the world a better place, so any venture with them needs prudence and due diligence as well. In fact, aggregators add another layer of rules and legal agreements that can potentially hurt profitability and growth and at an extreme, get sellers banned or restricted from Amazon and other platforms.
Scale is the name of the game with e-commerce, so aggregators moving in only makes sense. Their impressive track record (for the most part) means that they are here to stay. They aren’t necessarily a good thing for Amazon as ceding market control and power is not something the retail giant likes to do. For independent sellers they are a potential pay day.
Every brand needs to learn how to operate effectively in marketplaces and super apps. This trend has been mounting for years and will accelerate as customers spend more time fulfilling their needs in the most convenient and efficient “space” available.
I hope the marketplace operators don´t create any unfair trading practices that penalize the aggregators of the brands that choose to stay independent – but it is perfectly healthy and natural in any type of ecosystem to optimize the environment around you for your own self interest.
Is this not wholesale by another name? Or are they actually retailers that are just using Amazon to scale to the point of jump off to create their own online presence? If the latter is true, then Amazon could be consumed by its own success.
I cannot see why aggregators would not set up their own platform once they reach a certain size. They will have all the resources and supply chain set up to enable them to do so without paying Amazon for the privilege. There is clearly some way to go before many of these reach a size to damage Amazon. After all, who other than Walmart is that big now? But they could eat away at it and if there are 40 of them, they could take a reasonable sized bite out of it!
You are making a great point: when they reach a certain size should aggregators set up their own platform? Amazon can help scale rapidly, but doesn’t help create repeat business: aggregators don’t have access to client information through Amazon (and therefore can’t build any personal relationship with their clients), and they have to sell their products on pages surrounded by their competitors’ products. Except if their competitive advantage is purely based on the lowest costs and prices, at some point aggregators will find it useful to set up their own branded sales channels.
Small brands will get more traction, visibility and customers by partnering with multiple sales channels.
Ultimately the customer will choose the real winners, but in the meantime the aggregators help small businesses continue to climb their potential growth curve while the competitive market sorts things out in the long term.
It’s one thing to start an online business and do fairly well on your owned/operated sites. It’s another things to expand distribution outside of your owned channels and play by someone else’s terms. Suddenly things like agility, scale, supply chain management and even customer service take on a whole new meaning. Often smaller start ups need help in smartly managing this expansion.
If smaller companies can productively grow by leveraging fine-tuned operational logistics of more nimble business partners then this could be win-win for both. It’s just has to be lucrative for the small business owner and it should still create a fair and competitive shopping experience for consumers.
They form a strong part of the new online business model but seller aggregators are limited in that their acquisition can only focus on businesses that are 90 percent+ Amazon FBA sellers only, and the bigger picture now is traditional brick and mortar brands using multichannels to sell.
This is an interesting trend. That said, from past history it’s unlikely that they will remain aggregators for long. Once a good brand with potential emerges from their portfolio they will find far higher returns from focusing on that brand than by continuing to aggregate.
Note also that the aggregation won’t likely benefit either Amazon or any of the retailers in the long run as it creates power bases which will reduce their margins without supplying much value in return.
I would think that Amazon can and will quickly offer more for fee services to smaller retailers as the aggregators show that retailers will pay. I’m not sure that there’s a sustainable value proposition here.
After reading this and the linked articles, I’m less certain where Thrasio is positioning themselves — all the talk about brands is leading me to think they’re acquiring brand owners with an eye toward taking them into the general outside-Amazon world, rather than helping them be more effective on Amazon. Well, that isn’t news; there are plenty of investment groups doing that.
Now if there was some kind of confederation of brands/manufacturers that could wield more clout with Amazon and obtain the kind of white-glove attention that the luxury and major consumer brands get, streamline listing management, negotiate lower fees, etc. — that’s what I’d pay money for….
It’s all about economies scale for the aggregators. They have the luxury of buying out smaller sellers at lower cost and bundling adjacent services, logistics or infrastructure to service more sellers together with automated or standardized services. It’s not much different than any other industry where smaller players are eaten up quickly — except there are many more of these. If anything, this could reduce market power and influence of Amazon or other marketplaces. If the aggregator grows large enough they could develop their own delivery model and sales site and compete with Amazon directly-though I think this would only work with niche markets. In any case, it reduces the number of interfaces with sellers. What it should do over time is reduce costs for consumers and push out inefficient sellers in similar markets.