Some people will tell you that selling on Amazon is an incredibly risky business.
They’ve got a point. The Amazon marketplace is probably the most competitive platform on earth, with millions of sellers based all over the world. It’s very hard to succeed if you have dozens of competitors offering exactly the same item as you, especially if that includes factories in China that make the product in the first place. At any time another seller can come in and take your market share.
The marketplace isn’t always fair either. Sellers will frequently break the rules or even sabotage their competitors to get them thrown off the site. The threat of suspension is always present. Amazon itself is known for launching new own-brand products in categories dominated by third-party sellers, and quickly crushing their sales. It’s a fragile business.
Against this backdrop, seven start-ups have raised hundreds of millions of dollars to buy Amazon FBA businesses. These “roll-up” companies aren’t looking for innovative products that can become household names. They aren’t even expanding to other marketplaces or ecommerce platforms. They are just doing more of the same – selling on Amazon.
So what is going on here, and what can we learn from it?
Rolling up their sleeves
This week, SellerX became the latest company to join the ranks of the Amazon marketplace roll-up specialists, raising $118 million in funding. Investors in this Berlin-based outfit include four venture capital firms and an impressive roster of ecommerce industry veterans.
SellerX’s strategy is to build a portfolio of brands selling on Amazon, in areas like household, pets, garden supplies and beauty. It’s looking for Amazon sellers who are doing well, but struggling to grow further without outside help. SellerX aims to complete acquisitions in just a few weeks, then use their business “secret sauce” to grow each brand to a new level.
The Amazon FBA “roll-up” business model has really taken off, with other start-ups raising millions of dollars in recent weeks, and several others already active. Here are some of the biggest names:
- Boosted Commerce raised $87 million in September, and already has six brands mostly in the health and personal care category.
- GOJA has raised $30 million to date and has brands selling photographic equipment, cleaning cloths, aromatherapy oils, auto sunshades, tire pressure gauges and more.
- Heroes, based in the UK, raised $65 million earlier this month to acquire FBA sellers in baby, pets, home and garden, DIY, sports and outdoors categories.
- Heyday raised $175 million, also this month, with the backing of venture capital firms and executives from Amazon, eBay, PayPal and Magento. It has acquired and launched several brands since its founding in August.
- Perch has over a dozen Amazon FBA brands, covering kitchenware, skincare, auto tools, exercise equipment and health categories. They raised $123.5 million in October.
- Thrasio has been around for two years and its last funding round raised $260 million. It claims to be one of the top 25 sellers on Amazon, having acquired over 50 businesses in categories like baby products, crafts, fitness equipment and more.
OK, you might be thinking, “So what? A bunch of companies have jumped on a bandwagon and got venture capitalists to throw cash at them. What has that got to do with diversification?”
It’s a good question.
See what sticks
Let’s take a closer look. These companies are buying brands and products sold on the Amazon marketplace and fulfilled through FBA. Some of the products are innovative in design, but many are simple private label brands.
Examples include silicone drinking straws, umbrella stands, auto tools and workout resistance bands, many of which have dozens of competitors with almost identical products. They are really not that special, on the whole.
Something they have in common, however, is their foothold in the Amazon marketplace. They have strong search rankings, positive reviews, product listings that convert, a good sales history and so on. That is the real value here. It’s less about the products, and more about their presence on Amazon and the success that comes with that.
Where did these brands come from in the first place? Well, thousands of Amazon FBA businesses have been launched in recent years, often by one person working alone. Most of them failed, but that’s just the nature of business.
Collectively, a lot of mud has been thrown at the wall to see what sticks. It’s a terrible strategy for a single organization, but a much better bet if you can stand on the sidelines and watch thousands of other people do it, then pick from the winners.
That’s what the roll-up companies are doing. They buy up the brands that stuck, often from exhausted owner-managers who are relieved that they can simply walk away. With better resources, greater business experience and a system for selling on Amazon, the brands can be grown substantially.
They don’t need or want to diversify. This isn’t about taking innovative brands from Amazon and getting them in stores, or on every possible online sales channel. It’s much more productive to take that existing Amazon foothold and use it to climb even higher.
A recent Forbes article looked at what that means in practice, and explained how Thrasio grew four of its acquired brands. In summary, they improved product packaging, partnered with influencers, identified new keywords and cut shipping costs. Sales grew by up to 800%. Just with good business sense, better marketing and improved Amazon selling practices.
Time to go all-in
What does this mean to you, as an Amazon seller?
On the one hand, if you have a successful product, it means there are at least seven companies out there who could be interested in buying you out.
On the other hand, it shows that there might be a lot more potential for you to grow on Amazon. It’s where your product is already established, and that counts for a lot. Adding other channels might be tempting, but multichannel selling is an administrative and technical headache. Even if you get it figured out, the additional revenue is likely to be no more than an incremental add-on to your Amazon sales.
Why diversify when there is so much more you can get out of selling on Amazon? Get better at what you are already doing. Spend time learning about marketing and business. Find new ideas by researching products that aren’t direct competitors. Try new software or pay for outside help. Talk to other sellers, and find a way to look at your business with fresh eyes.
Remember, it’s easier for the roll-up companies to watch other sellers throw mud at the wall, and buy up the brands that stick, than it is to create new ones from scratch. For an Amazon seller, adding more sales channels (eBay, Walmart, Shopify) is just another way to throw mud at the wall.
Use what you know, and go all-in on Amazon instead.
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Don’t Diversify Away From Amazon. Go All-In Instead.