Up to $10 million! Amazon offers "interest-free loans" to sellers

Today, the Federal Reserve announced another 75 basis point rate hike, which is the fourth consecutive 75 basis point rate hike by the Federal Reserve this year . So far this year, the Federal Reserve has raised interest rates six times, with a cumulative rate hike of 375 basis points .

Frequent interest rate hikes before the peak season in Europe and the United States have intensified the negative sentiment in the consumer market. Many data show that the interest rate hikes have made consumers unwilling to consume on credit during the holidays. How will sellers who have been struggling for a long time continue to do so? Will Amazon's new loan plan help sellers?

Amazon launches new lending program, sellers can apply for up to $ 10 million

On November 1st local time , Amazon announced the launch of a new loan solution, Amazon Merchant Cash Advance ( MCA ) , which is provided by commercial financing provider Parafin.

According to the announcement, the program will provide eligible sellers with funds ranging from US$500 to US$10 million to help sellers expand their business, protect profits, develop new products, increase inventory, and effectively manage cash flow.

Specifically, if the seller's application is approved, the funds can be used to pay for any type of business expenses, including inventory management, wages and recruitment, marketing, or development of new products and solutions.

The specific announcement is as follows:

In addition, sellers are most concerned about the interest issue. The announcement pointed out that the MCA program will provide sellers with a flexible repayment schedule, which is determined by a fixed percentage of the seller's gross merchandise sales (GMS) until the funds are repaid. Most importantly, unlike ordinary loans, the MCA program has no minimum repayment amount, no interest, no late payment fees, and does not require collateral or credit checks on sellers.

The entire announcement seems to be completely beneficial to sellers. When the economic situation is not optimistic, sellers can rely on this plan to solve funding problems and do not need to consider interest issues. It is a complete "favorable policy", but is it really the case?

In addition to MCA , Amazon's existing loan program portfolio also includes term loans, interest-only loans and credit lines provided by Amazon and its third-party financing partners.

However, it is worth noting that Amazon's loan service page shows that the invited sellers for most of its loan programs are limited to eligible US sellers .

Currently, sellers can quickly apply to use MCA online , and if approved, funds will be available within a few days or even hours.

Regarding this plan, many sellers told Ennet that there is no free lunch in the world, and this is just a new way of harvesting . Some sellers also said that this plan is not interest-free as Amazon said. The screenshot on the Parafin website shows that the repayment rate is 12% of daily sales (not net income) .

However, some sellers believe that this is indeed beneficial to sellers because the length of the " loan " depends on the sales volume, and it is actually a capital advance, which also reduces the possibility of sellers encountering lending risks elsewhere .

Rising costs and pressure on profits make it difficult for sellers to survive

Why did Amazon launch an "interest-free" capital advance program for sellers? This may be related to sellers' sales confidence and market conditions this year.

Recently, Pattern released the "2022 Amazon Supplier Survey Report", revealing the sales difficulties faced by Amazon sellers in Europe and other markets in 2022 .

The report pointed out that 98 % of Amazon sellers encountered difficulties in the past year. Cost compression, rising logistics costs, and unpredictable markets are currently the biggest challenges faced by Amazon sellers in Europe and the Middle East ( EMEA).

The price spiral war remains the most commonly mentioned challenge this year. 64% of the sellers surveyed often encounter competitors offering big discounts and ignoring profits to grab market share, which bothers them greatly . Another 45% of the sellers surveyed believe that such a market competition environment is unhealthy .

In contrast , 11% of the sellers surveyed said they did not feel any negative impact from low-priced goods , while 39% were unsure whether they would adopt a low-price strategy in the future.

Currently, constrained by the economic downturn and sluggish consumption, sellers are suffering from the miserable order volume. At this juncture, in addition to the increase in product manufacturing costs, sellers also have to bear high logistics costs.

The container spot freight index SHIFEX shows that the freight rate for a 40-inch container from China to the Port of Los Angeles fell to $1,825 in October, falling to the peak season freight rate level before the outbreak of the epidemic. The U.S. East Coast ports are still congested , but the freight rates between the East Coasts of China and the United States are falling.

From the perspective of domestic sellers, although shipping costs are continuing to decline, FBA's delivery fees are indeed not low, especially in August this year, when Amazon announced another increase in delivery fees, saying that from October 15 to January 14, third-party sellers using FBA must pay an additional $ 0.35 for each item sold in the United States or Canada , and the fee varies depending on the size, category and weight of the item .

In this regard, 52% of the sellers surveyed believe that expensive logistics costs are also a heavy burden on sales .

Profit pressure , price erosion ( 96.4%), and complex and changeable logistics ( 85.2%) are all challenges currently faced by Amazon sellers .

At the same time , more than 50% of the sellers surveyed said they have not yet made a profit this year.

Data from the U.S. Bureau of Labor Statistics shows that as of September this year , inflation has pushed up the cost of all goods by 8.2% in the past year . Due to rising costs, sellers have no choice but to raise prices or reduce profit margins, but many sellers also said that there is no room for price reduction. However, raising prices will suppress the purchasing desire of consumers who are facing an intensifying financial crisis, and the consumer market is in a bottleneck.

Last year, there was a rush for sales, but this year, it is difficult to sell . Clearing inventory has become the top priority

Shipping backlogs and product shortages led to a supply shortage during last year's holiday shopping season. However, due to factors such as inflation , the consumer market for non-essential goods has stagnated . Since the beginning of this year , many retail giants and sellers have experienced excess inventory .

In recent months, delayed shipments and falling consumer demand have led to and exacerbated an inventory glut crisis . Products such as clothing, electronics and toys are in oversupply , so retailers such as Target and Walmart have launched deep discounts and other promotional activities on these categories since the beginning of this year .

In an August survey of 100 retail executives by accounting firm KPMG , nearly 90% of them expected that most products would not be in short supply during the holiday sales season .

Supply and demand matching is becoming increasingly unpredictable. Due to the instability of the supply chain, many sellers have learned from last year's lessons and ordered products in advance , but the decline in market demand has led to a surge in inventory . Sellers and retail giants are now troubled by the sales of out-of-season clothing and high-priced goods .

Some media reported that physical retailers, DTC merchants and online retailers are currently doing both: on the one hand , they sell at heavy discounts , and on the other hand, they sell excess products to liquidation companies for a few cents .

Prologis , a global logistics infrastructure giant , has said it expects to need an additional 800 million square feet of warehouse space in the United States to handle excess inventory .

In short , clearing inventory has become the top priority for many sellers and retailers this year, and the high degree of market uncertainty is still increasing . The market response during the upcoming Black Friday and Christmas sales peak seasons may not be particularly active, and sellers may suffer another wave of order volume hits.

At the same time, factors such as Amazon warehouse workers' strikes, railway strike crises and extreme weather may affect last-minute deliveries, which may trigger a wave of "returns" .

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