Third-party sellers giving Amazon a huge boost

Chris Boerner, a former brand manager at Starbucks who needs to take medication every couple of hours for myasthenia gravis, an autoimmune disease, couldn’t find a proper pill holder on Amazon.com.

She wanted something that was not only utilitarian, but also served as a stylish and discreet accouterment, so she created her own. In 2013, she started selling designer pill holders that double as keychains or necklaces on the Amazon website. Now her business, Cielo Pill Holders, sells tens of thousands of these items, mostly on Amazon, from $25 to $70 a pop.

In December she launched in the U.K., and last week on the Continent, relying on the tools Amazon offers to handle overseas fulfillment and sales. All from her home in North Bend.

“I’ve put so little effort into launching my business in five European countries, it’s crazy,” she said.

Boerner is one of more than 2 million merchants who sell their goods under Amazon’s wide umbrella, helping the tech and retail giant, already the largest online retailer, become also the world’s essential commerce and logistics hub.

Amazon takes a cut of their sales and increasingly handles even the storage and shipping of their merchandise. This week, it will gather 500 merchants (including Boerner) in a forum at its downtown Seattle campus where they will be coached on how to grow their businesses, hear about where things are going, and air their hopes and concerns in the presence of Amazon brass.

The annual event, which takes place Wednesday and Thursday, is the third such gathering Amazon has held for participants of what it calls its “Marketplace,” which launched more than 15 years ago after a couple of previous failed attempts. Now CEO Jeff Bezos refers to it as one of the three big pillars of Amazon’s business, with third-party sales representing close to half the units sold on Amazon versus a quarter in 2007.

This gives Amazon’s role in the retail world a huge boost. Last year sales by third parties exceeded $131 billion, according to Scot Wingo, of ChannelAdvisor, an e-commerce consultancy. When adding the sales of millions of merchants on Amazon to Amazon’s own, they come within striking distance of the nongrocery sales made by Wal-Mart, the world’s largest retailer, according to Wingo.

What’s more important to investors is that handling sales and logistics for merchants is more profitable for Amazon than selling its own stuff. Analysts with Piper Jaffray have estimated Amazon’s famously thin operating margins will rise from 1.3 percent in 2014 to more than 5 percent over the next several years, driven in part by Marketplace’s relatively high margins, as well as the growth in the cloud-computing unit and other profitable businesses.

Amazon fancies itself as the bane of all sorts of gatekeepers. So it makes a big deal of how the tools provided by its Marketplace enable a renaissance of retail entrepreneurship: Bezos in his latest annual shareholder letter said more than 70,000 entrepreneurs there each have sales of more than $100,000 a year and have created 600,000 new jobs.

“What this really created is kind of a level playing field for entrepreneurs and small-medium businesses. You can now go directly to consumers,” Peter Faricy, vice president for Amazon Marketplace, said in an interview.

A good example is Kristin Rae, who studied fashion and apparel design at Illinois State University and still lives in the Bloomington/Normal area in the central part of the state.

Rae worked in a couple of office jobs; then, as a stay-at-home mom, she decided to put her skills to use in her own brand of toiletry bags, Inspire Travel Luggage. She first tried to get into brick-and-mortar stores such as Target and CVS, but she couldn’t break in. Then she tried Amazon, where last year she sold a couple of thousand units. “When you struggle as an entrepreneur and you find an avenue that works, everything just clicks,” she said in an interview.

To be sure, it’s not all wine and roses. The open nature of the Marketplace and the automated way it operates (sellers can register online and start participating almost immediately) mean there always are some rough edges.

Philip Rooke, the German-based CEO of Spreadshirt, a company that prints and sells T-shirts on demand for designers and which has a store on Amazon, says dozens of merchants in China copy his clients’ creations and sell them as their own. Amazon takes down the offending product once Spreadshirt can assert the copyright. But it’s an intensive process, as Spreadshirt has thousands of designs, some of which have been copied by up to 86 different sellers. “Right now it’s like an epidemic,” he said in an interview.

Then there are arbitrageurs that scour Amazon for product discounts, acquire the product, and then resell it at higher prices. Forums teem with reports of sellers unfamiliar with how promotions work seeing their inventory wiped out, only to reappear in another seller’s Amazon store.

ChannelAdvisor’s Wingo says that’s part of the nature of the place — similar to a stock market for products. The resellers “take on a fair amount of risk and for every ‘trade’ that goes well, many frequently do not and have to be liquidated for a loss,” he wrote in an email.

The Marketplace is so vast, too, that it cannot elude political or social controversy. Recently activists called for Amazon to dump the Trump line of men’s clothing and for it to ban the sale of foie gras.

Other sellers chafe at Amazon and the way it enforces the rules. For years, online sellers have filed complaints with the Washington state Attorney General’s Office accusing the company of unexpectedly retaining their payments for what Amazon deemed misbehavior toward customers.

Also, merchants jockeying for position in Amazon’s sacrosanct “buy box” have spawned a cottage industry of consultants who help these businesses navigate the changing rules of the marketplace.

“There’s a whole class of businesses out there who live in fear of going out of business as a result of the fiat of Amazon and their algorithms,” said a seller who declined to be named.

Amazon “listening”

A recent change that should affect merchants is Uber-like surge pricing for those who have Amazon store and ship their merchandise, a measure that seeks to avoid the scramble seen during the latest holiday season.

Amazon is raising the price of storage for November and December, the busiest months in the retail year, and reducing it for October. The idea is to encourage sellers to store products that will sell by year’s end and not fill up Amazon’s warehouses with merchandise that will languish. The company will reduce weight-handling fees for items shipped in November and December to help offset the impact of the change.

Faricy, the Marketplace vice president, says Amazon, which has a corporate culture fiercely protective of the people who shop at its website, also considers the merchants that inhabit its Marketplace to be customers. He also says there’s a “separation” between the Marketplace and Amazon’s retail business, which is feared by some merchants.

The conference helps further the dialogue. “We really use this as an opportunity to do a lot of listening,” he said.

Faricy said the company provides tools to avert issues like copyright infringement and unintended discounting.

There’s also software that makes pricing and inventory recommendations for merchants based on Amazon’s knowledge of what sells, he said. At this week’s conference, Amazon plans to launch a tool enabling merchants to set prices automatically.

While Amazon’s role as an arbiter of online commerce grows, so does the allure of the Marketplace beyond entrepreneurs and small businesses. Gap CEO Art Peck hinted in a conference call in May that Amazon could play a bigger role in how it reaches customers.

“Amazon’s presence in e-commerce is undeniable in this country and, therefore, to not fully consider all the options of distribution, for us would be not to be thinking about things that were important to us,” Peck said.

Faricy acknowledges there was a lot of interest from big brands and well-known retailers. He says the No. 1 thing that Amazon is interested in reaching is its Prime customers, a loyal legion who pay $99 per year for shipping and other perks.

“This is where many, many customers are shopping around the world,” Faricy said.