Costs are rising! A group of individual sellers are falling behind

Peel off the glamorous appearance of the Amazon platform and see the real business dilemma ...

According to customs statistics, China's cross-border e-commerce imports and exports in 2023 increased by 1.2 times compared with 2018; preliminary estimates show that imports and exports in the first half of this year were 1.22 trillion yuan, a year-on-year increase of 10.5%.

Cross-border e-commerce is booming, and cross-border e-commerce platforms such as Amazon, eBay, and Temu have become hot topics. A generally accepted view is that among all e-commerce platforms, Amazon is the healthiest, fairest, and most stable platform because it has the highest input-output ratio, relatively stable sales, and small and beautiful sellers live very comfortably!

Outsiders may give a more perfect evaluation of Amazon. In short, it is very profitable. For example, the price of a product soars after it is exported. The factory price of a product is 1 USD, but the selling price at the front desk can reach 20 USD or even higher. Outsiders think: after deducting the product cost of 1 USD and the shipping fee, the rest is profit...

Perhaps this is the source of all the sad stories of losing money: the vast majority of people do not understand the difference between sales and profits, and just rush into the Amazon platform.

Only players who have experienced it personally know that the world of e-commerce games is extremely complex. The Amazon platform, which is known as the most profitable platform, may also be the place where people are most likely to lose money.

Many sellers join Amazon every year , but the door of opportunity is not open to all sellers. There is a widely circulated saying: Among 100 novice sellers , only about 20 can survive in the end , of which 10 sellers are in a status not much different from working, 5 sellers earn relatively more and have more free time, and only the remaining 5 can make a lot of money!

" Friends and family often ask me why it is becoming increasingly difficult to operate on Amazon. In fact, it is difficult to explain this question in one sentence. Seemingly small things can cause great harm to small and micro sellers ..." After operating on Amazon for many years, seller Xiao Zhang described his current feelings in this way. Amazon is becoming more and more difficult every year, and the sense of insecurity is growing year by year. Selling on the platform feels like there is an axe hanging over your head, and you don't know when it will fall.

"The A and B sides of the Amazon platform: some sellers are valued at tens of billions of yuan, while others are struggling to survive. It is actually more practical to study the current situation of these relatively unsuccessful sellers," said several sellers.

Profits are decreasing year by year! It is becoming increasingly difficult for individual sellers to sell on the Amazon platform

Xiao Zhou has been doing cross-border e-commerce overseas warehouse business, doing drop shipping work in overseas warehouses. This year, the number of customer shipments has decreased, and many days are very busy. "Because the customer's sales are not as high as in previous years, not just one customer, but nearly 20 customers have reported that business is not good, and many are clearing out inventory and wholesale goods to offline stores in New York at low prices."

Xiao Zhou's perspective partially reflects the difficult side of cross-border e-commerce. Amazon, which has been the industry leader for many years, is also showing its cruel side amid complaints from sellers about declining sales.

Amazon seller Xiao Zhang is experiencing a period of business stagnation. Sales are currently down 70% from last year, causing his account health rating to decline. This is the worst year in his 16-year sales career, but he doesn't know what happened. Everything is operating normally as usual, and sales are usually quite stable. This year is an exception, and the product has almost no exposure...

Unlike Xiao Zhang, another veteran player Xiao Li said that sales on the Amazon platform have been declining year by year. Starting in 2022, the stable business began to go downhill, and sales continued to decline in 2023. From 2024 to now, the situation has become worse and worse, and profits have begun to halve compared to last year. "The situation has been getting worse every year for three consecutive years, as if Amazon doesn't want us to stay on this platform anymore."

More than one Amazon seller has found that sales and profits are declining. Reducing business on Amazon has become a common self-protection method for them.

Xiao Li is one of them. After the pressure increased and the profit continued to decline, Xiao Li continued to lay off employees. Currently, the company has only two people responsible for Amazon business. At the same time, he continued to cut unprofitable product lines, from an average of hundreds of products at the beginning to one FBA list. "If the business environment of the platform becomes more friendly in the future, I may continue to increase investment. Now, this possibility is actually very small. The platform has no shortage of sellers. If a seller leaves, 10 new sellers will immediately take his place..."

Xiao Liu is also gradually reducing his investment in the Amazon platform and focusing on Walmart and eBay platforms. This year, his Amazon platform sales fell by 50%, and his profits were almost cut in half. Fortunately, other platforms offset the risks brought by Amazon's performance decline. Rare and small-batch products such as toys and games have achieved very good sales results on eBay . At the same time, sales on the Walmart platform are getting better and better. Next, Xiao Liu plans to build his own independent website. "This may not be cheap and time-consuming and labor-intensive, but the customers and traffic are yours, and you have great autonomy."

For Amazon sellers, a drop in both sales and profits is not the worst situation. Closing a store at a loss is a deeper "harm" to them. A cruel reality is that closing a store at a loss is a very normal thing on the Amazon platform. Many stores are closed down while they are still operating...

"In a small industrial area, there are 7 companies doing business with Amazon. 3 of them have closed down, 1 has switched to 1688, and the remaining 3 have laid off employees." Some people have seen the embarrassing side of the Amazon people around them. This situation will happen to a group of old sellers, but it is also more applicable to new sellers who are prone to falling into traps, especially individual sellers without resources and financial advantages. Amazon's survival elimination competition is becoming more and more cruel.

"Amazon is no longer suitable for small sellers. Now, starting a business on Amazon requires more than one million dollars. Before 2018, individual sellers could still enter the market to make some money, but most of the small sellers who entered the market after that will leave at a loss. This is because the profit of products with relatively low barriers to entry is basically not high. If you want to make high profits, you have to make products with barriers to entry, and the latter requires resources and money, which is exactly what small sellers lack. "

Xiao Wang is one of the many whose sales have plummeted. As a small and micro seller who works alone, he has very weak risk resistance. This year, Amazon's algorithm changes, increased FBA fees, and rising advertising costs have almost destroyed his Amazon business. After this year's peak season, Xiao Wang decided to close his store.

"It was the platform that abandoned me. Amazon only wants sellers with strong financial resources..." Xiao Wang explained his withdrawal this way: individual sellers are replaceable, and new sellers are constantly replacing old sellers. The platform believes that new sellers are better for Amazon. Sometimes I even think that the "improvement" of the seller experience is precisely to eliminate lower-level sellers.

Costs are rising! Amazon is entering an era of inventory competition

To outsiders, a product with a purchase price of $1 can be sold for $20 after being listed on the Amazon platform. After deducting the purchase cost and shipping fee, the remaining money is profit, and the profit must start at at least 50%... Therefore, they often wonder: Why are Amazon sellers always complaining?

This is a very classic misunderstanding. After actually working on Amazon, the "leeks" began to understand that the development of Amazon before was less than one thousandth. In fact, the investment cost of Amazon is very high, and a lot of money is earned by the platform. Merchants do not make money easily. For example, if Amazon sells something for $20, the platform takes $13 (commission, advertising, logistics, etc.), and the remaining $7 needs to be deducted from the cost of the goods and the cost of the first-leg logistics!

There is no shortage of merchants in Amazon 's e-commerce game . It can even be said that the platform is over-saturated with merchants today . However, the market pie is so big that merchants have to pay more advertising fees to grab limited traffic.

A newbie said that he has invested more than 100,000 yuan in payment and shipping costs. He had a great idea at first and thought it would be easy to make money. But once the product was put on the shelves, he found that theory and practice were completely different. He has been investing money but not making any money . "I never thought before that how could I lose money by selling something worth a few yuan for 10 dollars? After entering the market, I found that advertising was too expensive. If I opened advertising, I would lose money. If I didn't open advertising, I would have no orders. I was definitely working for Amazon. One of the products cost too much for advertising every day, but only made a stable single-digit profit. Overall, advertising costs and sales were barely equal, and sometimes sales were not enough to cover advertising costs."

Merchants continue to invest to expand the platform's advertising revenue.

Google estimates that by 2023, Amazon's retail advertising revenue will be greater than Google's. Marketplace Pulse data shows that in the past four quarters, Amazon's advertising revenue has reached $51 billion , four times that of five years ago (more than twice the growth rate of Google's advertising business). As Amazon's platform adds more ads, more ad types, and more data for advertisers (sellers), such as new bulk management of advertising campaigns and sponsored TV advertising services, the growth rate of the advertising business has exceeded GMV.

This view is particularly evident in Amazon's second-quarter 2024 financial report data: the advertising business is one of Amazon's fastest-growing business types , with net sales of advertising services in the second quarter reaching US$12.771 billion, a year-on-year increase of 20%.

Amazon provides dozens of services . In addition to advertising, FBA is also a logistics service used by almost all sellers, and it is also a major area of ​​complaints.

In recent years, FBA fees have been rising year by year, and the number of charging items has been increasing year by year. FBA fees are higher than the product price, and this is not an empty talk for some sellers. "A low-value product is sold at $2.99 ​​on Amazon. After a logistics fee policy adjustment, FBA costs once exceeded $5. This means that every order sold will result in a loss, which will only hurt small businesses."

The above is just the tip of the iceberg of operating costs.

Xiao Liu did some calculations. For a product, the platform charges a 15% commission, 15-20% final delivery fee, 10-20% advertising fee, and 20% tax in Europe. In addition, the cost of purchasing the product , labor , rent , water and electricity , inventory pressure , return and after-sales service ... all kinds of expenses easily amount to hundreds of thousands. The platform makes money after the goods are sold, and it also makes money if the goods are not sold. The platform makes money no matter what, and merchants often bear greater pressure and risks. Sellers are inevitably faced with these cost monsters that cannot be reduced.

Many sellers believe that Amazon’s problems also include: it has become less and less friendly than before, with new and old accounts being blocked at any time, various risks coming from time to time, sellers being accused of Amazon’s fault, more and more customers abusing the return policy, and it being difficult to find the relevant person in charge when encountering problems ... Behind each problem is a considerable tuition fee.

A seller reported that the loss rate of goods sent to Amazon warehouses has increased from 1% to 5%. In other words, 5% of the products have disappeared without a reason before they are even sold. In the past, the platform was relatively responsible for such things, but now it has started to "play dirty". Various data clearly show that the goods were lost by the platform, but they just ignore it.

"Selling on Amazon means there is always an ax hanging over your head. Sellers need to follow all policies, provide quality products and quality services, but Amazon still has some stupid behaviors that can cause a heavy blow to operations in the blink of an eye." This is the unanimous feeling of many people in the game. The increasingly absurd phenomena have made this platform unstable, although it is still the relatively healthiest platform among all platforms. Obviously, Amazon still has room for improvement. A truly good platform can allow customers to buy good products, sellers to make money, and the platform to get commissions . It is a three-way balance ...

Pursuing price war, a number of Amazon stores disappeared

Temu’s accelerated rise highlights the operational difficulties faced by Amazon sellers in recent years: endless price wars that plunder profits.

Amazon 's second quarter 2024 financial report data showed that net sales were $148 billion, a year-on-year increase of 10%; net profit was $13.5 billion, a sharp year-on-year increase of 100%. The data is still impressive, but the growth of the core retail business has slowed down. Sales in the North American market reached $90.033 billion, a year-on-year increase of 9%, and the revenue growth rate was slightly lower than expected. Amazon's financial director pointed out that the main reason is that the platform's online retail business is facing fierce competition from low-price retailers such as Temu. More and more American consumers no longer pursue branded or high-end goods, but choose to buy low-priced products with better cost-effectiveness, which has led to a decline in Amazon's average selling price (ASP).

JPMorgan Chase recently said that the probability of the US economy falling into recession by the end of this year is 35%, higher than 25% at the beginning of last month, and the probability of a recession in the second half of 2025 remains at 45%. Consumers' pessimism about the future pushes them to choose low prices. According to a survey, nearly 60% of respondents believe that the United States is currently in a recession. With rising living costs and insufficient income, the recession may last until July 2025.

Therefore, more and more American consumers are becoming more careful with their spending when shopping online , and they focus on finding the best prices. Many consumers even believe that price is the most important factor when shopping online , surpassing product quality.

Many sellers feel deeply about the pressure from the external environment. "The external environment may not be good. Foreigners don't have much money anymore. They are much poorer than in previous years. The product prices have to be low. "

To put it more comprehensively, the essence of the price war is still caused by internal and external troubles. With few resources and no external expansion, sellers will scramble for fixed resources with small output , which will inevitably lead to a fight. In the space of declining profits, product quality will go downhill, and ultimately both buyers and sellers will be hurt. There is no winner in this battle .

A group of sellers took the initiative to go low-price. Although everyone hates or even detests selling at low prices, this will not prevent most stores, especially homogeneous products, from continuing to see lower profit margins.

There is a classic strategy on the Amazon platform called strategic losses - the main idea is to outlast others and then I can make money. The specific operation is very simple. First, seize the market with a low price, and then raise the price after the market share is larger. This strategy actually worked in the past, but it is becoming less and less effective now, because there is no lowest, only lower .

"A product in our store used to be very popular. A few years ago, the price was around $13.99, with a maximum fluctuation of about $1. No one broke this price limit. After the epidemic, a group of new sellers started with a price of $9.99, disrupting the normal product prices. Now, the price of this product has dropped to $5.99, $4.99..." Regarding the price war, almost all products sold by the seller Xiao Li were affected and were all involved. Affected by this, it was difficult for many products to break even, and finally the operation had to be abandoned.

This is how price wars work. Under price wars, product sales may be very high, but you will not make any money at all. You will hurt others and yourself at the same time. "Last year, the sales director set a strategic goal of seizing the market with low prices. However, after the first half of this year, the profit data is horrible . The more you sell, the more you lose. "

It can be observed that many of the stores that raised prices have disappeared silently.

An industry insider revealed that a while ago, a competitor who had launched a price war against their store had disappeared. He knew that the supplier of the same industry had lower costs than his own, and the profit margin should be higher , but the store just disappeared!

Being too cheap will lead to losses and create operational risks. What’s more, Amazon can no longer survive by relying solely on cheap prices.

Final Thoughts

In the process of Amazon's rapid growth and market maturity, sellers' profits have followed the development trajectory of huge profits, high profits, normal profits, and low profit margins. Today, the era of opportunities for land grabbing is gradually fading away , and the next era is the gradual arrival of polarization . Head sellers use high-quality supply chains and efficient teamwork to eat up most of the profits. Small and medium-sized sellers who have one of the advantages of suppliers, supply chains, operational efficiency, and products have a chance to survive. For the rest, it is only a matter of time before they fall behind.

Those sellers whose operations are not successful have left a warning: in this long and ever-changing e-commerce competition , sellers need to work hard enough and be strong enough, not only on Amazon, but also in any industry .

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