Weighing the Pros and Cons of Selling on Amazon

There’s no denying the grip Amazon.com has on consumers. Amazon is reported to account for nearly 50 percent of all e-commerce sales in the U.S. as of 2023. To put it in perspective, Amazon gets one of every two dollars spent in e-commerce at large. This cannot be understated. Brands at all levels — low-margin, mid-market, and premium — recognize this. That lion's share of the e-commerce market, coupled with the challenging macroeconomic market at large, less available capital from lenders and private investors, increased costs to target customers, and inflation impacting production costs (and, ultimately, requiring brands to increase their pricing), means brands must leave no stone unturned. The future of retail is omnichannel, and while we know e-commerce will continue to take a larger share of the pie, you need to be diversified to excel in these conditions.

Lately, you’ve seen an influx of brands move to Amazon, including Too Faced, Kiehl’s, Allbirds, and Curology. The particular trend with premium brands makes sense. It’s harder to attract the premium consumer now more than ever. Therefore, brands are playing a safe bet on where consumers are already going with intent to buy. The pros of selling your brand's products on Amazon are clear:

• Access to a customer base with intent to purchase and seamless one-click conversion.
• Enable ad network within an already intent-driven group of customers.
• Localize a brand's offering through Amazon’s worldwide logistics.

However, it’s not all sunshine and roses when it comes to selling on Amazon. Years ago, we saw Nike famously join and two years later leave Amazon, breaking its contract. The cons are equally worth weighing when considering a move to Amazon:

• Reduced margins — Amazon takes a 15 percent cut to sell on the platform and another 15 percent to use its fulfillment at a base level. The cut can be higher as more services are added.
• Devalued brand perception for brands that consider themselves premium now selling alongside a myriad of brands, including value and midmarket brands.
• Exposure to working with a partner that has repeatedly knocked off brands or increased fees on brands to stifle competition with its own private-label products.

This trend is taking place now due to the uncertain macroeconomic environment. However, it will be interesting to see if it has staying power, considering retailers' many past challenges when working with Amazon.

Juan Pellerano-Rendon is chief marketing officer at Swap, a retail technology platform that manages all e-commerce operations for direct-to-consumer brands.