The unstoppable spiral: TOP1 launched 0 yuan purchase, and the sellers lost millions and left the market

This has been a year of ecological disorder in the Amazon.

The peak season is approaching, and Amazon is still spiraling. The TOP1 site in a certain category has full discounts outside and on the site, and it is controversial to buy for free and get warmth. Perhaps it is aware of the need of sellers to sell goods, and the US site has recently adjusted the coupon settings, raising the maximum value to 80%. A seller joked: "Okay, I'll give it away for free~" Will the discounts for the next products be even greater?

To cope with the competition, sellers were forced to increase their advertising investment. For a product priced at $7.99, the recommended bid was as high as more than $6. Seeing that the advertising fees paid to Amazon were more than their own profits, many sellers decided to shut down their advertising.

Costs are skyrocketing, and even with careful calculations, sellers are still shocked when they count their profits. Many are only trying to break even, and some companies are even unable to pay their employees. As the highlight of the year-round sales, this peak season is extremely uncertain.

The spiral that can't be stopped, TOP1 starts 0 yuan purchase

Recently, Amazon sellers have been calling for price increases. With unprecedented increases in shipping and advertising costs, many sellers can no longer afford it and have to raise prices. "I'm going to raise prices and withdraw from the Amazon branch of the China Charity Federation. Whoever wants to do it can do it." Such situations are not uncommon, and some companies have arranged operations to appropriately raise product prices.

However, according to sellers’ feedback, the number of orders has dropped significantly after the price increase, and sellers need to find a price balance between sales and profits. In an environment where low prices prevail, the resistance to price increases is self-evident. Some leading sellers tried to increase prices for a few days before lowering them again.

Low-price sales are still the mainstream. Yesterday, a seller found that the TOP1 product in a certain category was fully discounted, and it was 0 yuan to buy and get warmth. The product was 60% off outside the site, and there were 20% coupons and 30% promotional coupons inside the site, which was amazing.

Another seller complained that a large coupon followed by a seven-day flash sale, then another large coupon followed by another flash sale, and the internal competition was endless. Everyone thought they could rush in, but they didn't know that it was easy to build an empire but difficult to maintain it.

Amazon is a clever guy. This week, a seller found that the coupon page on the US site was revised, with a minimum discount of 5% and a minimum discount of 80%. The seller joked: "Okay, I'll give it away for free." A bigger discount means more sales and lower profits, but considering the current strong demand for clearance, the huge discount of 80% is likely to be used by sellers.

The spiral phenomenon may also improve. First, some sellers are tired of the futile price war and decide to withdraw from the low-price charity organization and slowly increase prices; second, as the storage capacity is tightened, it is difficult to replenish stocks and the risk of out-of-stock increases, so it is the first choice to keep the stock and maintain profits; third, the state has taken action, and many places such as Guangdong and Zhejiang have restricted electricity and production, and the supply of goods may be tightened, so sellers with normal inventory do not need to dump at low prices.

Affected by the "double control" policy, power restrictions and production suspensions are sweeping at least 10 provinces including Jiangsu, Zhejiang, Shandong, Guangxi, Yunnan, etc. Since September 22, many A-share listed companies have intensively issued announcements on power restrictions and production suspensions. In Dongguan, Foshan and other places, there are power outages for 4 days a week, and even worse, 6 days of shutdown and 1 day of operation have begun to occur. The tightening of the supply side has given sellers a glimmer of hope: Will the spiral stop?

This hope may be dashed. Currently, apart from old sellers clearing out their stocks at low prices, there are not many new sellers or new stock, and the platform is still digesting the previous stock. One of the prerequisites for the end of the price war is that the excess inventory is digested. According to the forecast of big sales, this process may take up to a year.

In addition to lowering prices, some sellers also increased advertising, taking a two-pronged approach to compete for traffic. As a result, the prices of products in the category collectively dropped, while ad clicks were significantly increased.

Some sellers shut down their ads as fees soar

"The advertising costs in May were 1.7 times that of April, and the profit was directly reduced by nearly 20%," said a seller.

In the second half of the year, Amazon's advertising costs climbed again and have remained high since then. The cost of launching new products is getting higher and higher, and the bidding for advertising suggestions is so high that it makes people question their lives; advertising costs have doubled, bidding has gone up, but sales have not increased. In the second half of the year, the proportion of advertising in sales of many sellers has increased from less than 10% last year to more than 15%. Some people lament that Amazon's advertising fees earn more than their own profits. This is probably the pain point of many sellers at present.

In July, the platform suggested bidding for a product priced at more than ten dollars as follows:

(Photos posted by the seller)

There were similar bids for other products priced below $10. One seller was speechless because the product was priced at $7.99, but he was advised to bid more than $6.

The reason is that the current demand for new products has caused the supply of advertising space to exceed the demand, and the price has also risen sharply. The bids for some categories are not high in themselves, but in order to get the first exposure on the homepage, some sellers increase the bid price of this advertising space by +900%.

The increasingly expensive advertising fees are unbearable for sellers. After weighing the pros and cons, some sellers decisively shut down their advertising:

“——I have already reduced the price to a 10-point gross profit, turn off the ads, and let it go;

——Real!! I also gradually turned off the ads and only kept some;

——Advertising costs are too high. I can still sell even without advertising. I have stopped advertising a lot.

I also stopped part of it..."

High advertising costs eat up a lot of profits, and seeing only shipments but no payment makes people feel very uncomfortable. In the days when advertising costs are high, for non-new products, sellers have to stop many advertisements and stop pursuing sales, but instead pursue gross profits.

Research institutions have also observed the phenomenon of rising advertising prices. Data from Marketplace Pulse shows that the average CPC (cost per click) on Amazon's US site was $0.85 last year, reaching a low of $0.75 in May when there was a widespread shortage of products. At the beginning of this year, the average CPC was $0.93, and the average CPC for ads in June had risen to $1.2, a 50% increase from the same period last year. The average advertising cost of sellers (ACoS) has also risen to more than 30%, which is a huge gap from the ideal indicator of 5% comprehensive ACoS.

Similar advertising price changes are not only seen in the US site, but also in Japan and Europe. As of June, the cost of acquiring customers for sellers is already far higher than 20%, and will be even higher in the future.

As advertising costs continue to rise, some sellers say they will raise product prices and allocate budgets carefully. Chuck Gregorich, a local seller in the United States, sells fire pots and outdoor furniture on Amazon. In order to balance the high logistics and advertising costs, he expects to increase prices by 10% this year. This is very different from the low-price strategy of domestic sellers.

How much has Amazon's overall advertising expenses increased this year?

In Amazon's financial report, advertising is classified as "other". In the first quarter of this year, the revenue of this category increased by 77% year-on-year to $6.9 billion; in the second quarter, Amazon's advertising revenue rose rapidly to $7.914 billion, an increase of 87% over the same period last year, almost doubling. The sellers' increasing advertising costs are all gathered here. Another data from EMarketer shows that this year Amazon's advertising revenue in the United States alone will exceed $20 billion.

In order to maintain sales, Amazon sellers are flexibly using the two big sticks of adding advertisements and lowering prices. After a series of fierce operations, most sellers have maintained their sales, but after a thorough inventory, they found that their profits have fallen to the bottom.

Sales VS profit, storage capacity VS profit, sellers are caught in a dilemma

The decline in sellers' profits and the silent lowering of sales targets are, to a certain extent, closely related to the overall market environment in the United States.

When analyzing the reasons for the continued decline in orders, veteran seller J said that Americans have no money and many people are not spending money. If they have to buy something, they will choose cheap ones.

During the COVID-19 pandemic, the United States implemented multiple rounds of cash distribution plans to stimulate consumption. Now the cash assistance has officially expired, and more than 11 million Americans can no longer receive the subsidy, or the amount of subsidy they receive each week has been reduced.

According to foreign media estimates, if no new policies are enacted by the U.S. Congress, approximately 8.8 million Americans will lose their benefits completely, and another 3 million or so people will see their weekly aid reduced by $300.

In fact, since June this year, most states in the United States have successively stopped unemployment assistance programs during the COVID-19 pandemic. The purpose of stopping unemployment benefits is to improve employment.

In the United States, high unemployment benefits are higher than the wages of some industries. Lying at home makes more money than going out to work, so who is willing to "risk going out" during the epidemic? After many states stopped issuing unemployment benefits, the U.S. unemployment rate fell by 0.2 percentage points month-on-month to 5.2% in August, but the number of new jobs in the non-agricultural sector was only 235,000, far below expectations.

Most Americans do not have the habit of saving money. Not only that, most people tend to overspend and spend ahead of time. They use credit cards to advance their wages for the next few months or even years, and then slowly pay them back after enjoying the money.

The sudden outbreak has left many people unemployed. In the context of the unemployment wave, 8 million Americans did not celebrate Christmas last year because they had no money, and some were even heavily in debt. This situation continued this year. After the unemployment benefits were stopped, many unemployed people could only live off their savings, but they had no savings at all.

Nowadays, many people are not unwilling to spend money, but their financial strength does not allow it.

The economy is stretched, and many Americans are afraid to spend recklessly. This year, the number of local dollar stores has hit a record high. According to data from market research firm Coresight Research, 7,300 new stores are expected to open in 2020 and 2021, of which 3,150 will be dollar stores, accounting for 43%.

When buying things offline, people tend to choose cheaper ones. However, most people who shop online definitely pay more attention to price than before.

We can also learn something from the feedback from Amazon sellers. Since the beginning of this year, many sellers said that many consumers have asked whether they can get free products by writing good reviews. Entering the second quarter, a fierce price war broke out on Amazon. Sellers face the situation that products cannot be sold without price reduction and there is no profit if the price is reduced.

Xiao W, a new Amazon seller , said that seeing that his peers were all lowering their prices, he had no choice but to follow suit. He had already lowered his prices to the point where he was losing all his profits, but his peers were still lowering their prices. If he didn't lower his prices, his ranking would drop, and his sales would also be affected. Sales and profits, one is about the present, the other is about the future. It's too uncomfortable to sacrifice profits to protect sales. "I really can't bear it if this continues. I hope my peers can raise prices together and stop involution." Xiao W was helpless.

Like seller Xiao W, veteran seller M's situation is not optimistic either, as price competition in his category is fierce. M said that in the past five years, it was the first time he had seen such a sharp price drop in the category, as everyone seemed to be unwilling to make a profit and was trying to lower prices. In addition to maintaining sales, some sellers lowered prices in order to increase sales and sacrifice profits to maintain inventory capacity.

After Amazon's frequent adjustments to its storage capacity policy, it encountered a sharp increase in shipping costs, which suddenly increased by 2-3 times, and the delivery time was difficult to guarantee due to frequent delays. Seller B analyzed the current situation: 1. Price reduction: Products sell quickly, profits are thin, but storage capacity will increase; 2. No price reduction: Products sell slowly, profits will be higher, but insufficient sales will lead to repeated reductions in storage capacity.

Sales VS profit, storage capacity VS profit, which one should be secured first? This is a difficult choice that many sellers face.

With a loss of 700 million yuan in half a year, many sellers cannot escape the curse of declining profits

Faced with the difficult choice, many Amazon sellers temporarily sacrifice immediate profits for future "rise".

Since May, a large number of sellers have reported a sharp decline in profits, and this phenomenon has continued to this day, with the most severe declines in June and July. Amazon seller M said that he has been doing Amazon for 5 years, and compared with the profits of previous years, this year's profits are the lowest. There are many other sellers with similar situations, and the relevant feedback is as follows:

“——The company’s overall profit is 10% less than the same period;

——I don’t dare to calculate the profit in July, because the profit after VAT withholding in Europe is even less;

——Sea freight has been soaring. A container in the US East is almost 20,000. All the profits are eaten up by freight.

——The products cannot be sold even at a reduced price. Now I dare not even hope for profit, I just hope not to lose money.”

As profits decline, many sellers are almost in a loss-making state. In this case, big sellers may be able to hold on, but some relatively small sellers and new sellers are in a worse situation, as their profits are not enough to pay their employees.

A seller said that the company has just hired a new developer and has new products every day. They send out small batches of products through FBA to test the waters. The average order value is around 10 Euros. They don’t do any off-site promotion or fake orders, and the advertising budget is very low. The profits in the performance report published every day are not enough to pay the employees’ salaries.

Another seller is in a similar situation: the company team currently has 9 people, and several operators do not have any products and have been developing products. Some have not developed a single product in more than three months. Currently, the daily turnover of all stores is more than 5,000 US dollars, and the profit is really not enough to pay salaries.

In addition to the multiple-choice questions, the impact on profits is related to a variety of factors. For most sellers, the increase in shipping costs, the soaring advertising click costs, and the high storage costs during the peak season are more obvious. The simultaneous increase in multiple costs, coupled with the impact of the account suspension wave, has seriously damaged the profits of many sellers this year.

A big seller in Guangzhou said that compared with the same period last year, the sales profit through the Amazon platform this year has dropped by more than 10%; a well-known seller in another niche category also said that this year, like many people, the profit has indeed declined a lot. Shipping and advertising both require costs, and everyone is also engaged in a price war, so where does the profit come from?

Even the industry's top sellers cannot escape the curse of a sharp drop in profits.

From January to June this year , Youkeshu's revenue was 1.092 billion yuan, down 51.12% year-on-year, and its net profit loss was 742 million yuan. The price of its six categories of products fell by more than 600 million yuan, and the price reduction promotion of industry sellers was partly responsible for the price drop of the products.

In the first half of the year, Zebao Technology's sales through Amazon accounted for 97.13%. Its half-year revenue was 1.925 billion yuan and its net profit was 115 million yuan, which was more than 30 million yuan less than last year's 148 million yuan.

Gemtek , a 3C retailer that successfully listed on the A-share market last year , had operating revenue of 300 million yuan in the first half of the year, a year-on-year decrease of 21.27%, and net profit of 15.5457 million yuan, a year-on-year decrease of 72.67%. Amazon accounted for the majority of its online revenue.

To a certain extent, the current situation of top sellers may be the future of small and medium-sized sellers.

After estimating his profits for the past six months, veteran seller M lamented: “Maybe many people are like me. The money I earned last year by luck, I lost this year by strength!”

A seller posted about his situation. He calculated that he made almost no money this year. It is difficult to work alone on Amazon. An old seller posted a joke: "I just calculated the revenue for the first half of the year. I lost more than 3 million. Let's cheer for him together."

Perhaps this joke is a true portrayal of a few sellers.

A practitioner in the Amazon seller group said that he knew a factory owner who had lost 300,000 yuan because of the low-price spiral; another leading seller in the industry said that several sellers in my category tried to rank high with super low prices, but they couldn't hold on for three or four months and would drop in ranking as soon as they raised prices, resulting in a loss of several million and a miserable exit from the market.

Forecast: Anker's net profit this year will be 1.242 billion

As the price war continues and some sellers exit the market at a loss, more and more people in the industry realize that the price spiral is not a solution and it is difficult to get out of it.

A group of sober-minded sellers began to reject price wars and return to the essence of business - to protect profits. In August, more and more sellers said that they would no longer be philanthropists and would start calculating prices and increase prices from today. As of September 23, more and more sellers began to increase prices.

The general content of the posts by many sellers is that the shipping cost has increased so much that it is really unbearable if the price is not raised. I will raise the price next, whoever wants to raise it can raise it.

Some sellers have also issued articles calling on their peers to raise prices together, rejecting the low-price spiral and competing in a relatively fair environment. As the peak season approaches, some sellers who have raised prices have reported that the overall order volume is good and the price increase has no impact.

Some big sellers in the industry attach great importance to profits.

The person in charge of Amazon, a major seller of home products in the industry, said that many sellers in the same category are engaging in price wars, but we will not. We will consider profits first. In this year, when the cost increase affects profits, we have raised prices for sales. Profit protection is the first priority. Regarding whether the price increase will affect orders, the person in charge said frankly that in the short term, it will definitely be affected to a certain extent, but in the long run, only profits can survive.

As of mid-September 2021, a total of 20 institutions made forecasts for Anker Innovations' 2021 annual performance within 6 months, predicting that its net profit in 2021 will be 1.242 billion yuan, a year-on-year increase of 45.14%.

The low-price spiral on the Amazon platform is nothing more than a profit game, and only sellers who can make money in the end can survive for a long time.

Amazon, Losses, Spiral