Amazon U.S. is an e-commerce market with a $595.1bn (€561.6bn) annual turnover and 173.6 million online shoppers, and ranks among the top global markets. It is also home to a wide range of successful e-commerce companies, making it the world’s favourite cross-border shopping destination. In addition, the U.S. is a hub of innovation, digital progress and retail technology.
Expanding a market to the United States means competing in a tough retail environment, with high consumer expectations and business standards. However, the potential is enormous: Individual e-commerce spending per person a year is an average of $3,428 (€3,235) over twice as high than the European average of €1,540.
A storefront on a leading marketplace such as the one operated by Amazon, is a good opportunity to test a market with relatively low business risk, for instance, before launching a dedicated webshop. A marketplace storefront can also be a strategic complement to an existing sales channel in order to increase brand awareness. We spoke to Timon van den Berg, CEO of Salesupply USA, about foreign brands selling on Amazon U.S..
This article previously appeared in Cross-Border Magazine No.2/ December 2016
Why is it interesting to sell on Amazon U.S.?
“Amazon is by far America’s favourite marketplace. It has a giant footprint reaching over 80% of local internet users. Hitwise researched earlier this year that over one third of all visits to the larger U.S. online-shops were absorbed by Amazon. A brand audience is of course beneficial for European players, especially when they are still building their brand. They can assess the market potential and at the same time increase brand awareness via a powerful channel. On top of that, Amazon rolls out most of its innovations in the U.S. market first, such as Amazon Prime Now or Amazon Fresh. This means that not only the service level, but also the distribution and partner network in the U.S., is extraordinary. Foreign retailers selling via Amazon can benefit from this.” Also, let’s not forget that Amazon has an estimated 63 million Prime users, who are loyal Amazon buyers that benefit from Amazon Prime’s membership. (source: http://fortune.com/2016/07/11/amazon-prime-customers/)
Which companies should think about taking this step?
A good indicator to start selling via Amazon U.S. is when your Google Analytics statistics show that you have visitors from the U.S., but no U.S. conversion. Amazon allows you to service your target group relatively easily, depending on the category in which you are selling in. Furthermore, I consider innovative products in high demand an interesting choice to sell via Amazon (successful Kickstarter products for example). If you belong to that category you might also want to consider Amazon Vendor Express, although you need to apply for it and Amazon might take a bigger piece of the pie for the sales price. Service levels are streamlined between most of the sellers so you typically compete on prices, especially when you are a new seller in a category with a lot of competition. Something to take into account is that successfully selling on Amazon Europe doesn’t necessarily mean that you will be successful in the U.S. as well. Keep a close eye on the effect of the transportation cost to bring your products into the U.S. market. These transportation costs might damage your competitiveness on Amazon.
What are the biggest challenges for foreign retailers?
Sometimes the biggest trouble for a retailer to successfully launch on Amazon, might actually be Amazon itself. You need to pay close attention to see whether there are any category specific requirements. Dealing with Amazon to sort out these requirements might consume a lot of time and typically means that you must be patient and/or flexible. When you start the process, you may notice that Amazon is very much consumer focussed, so retailers need to adjust their procedures to the pricing and rules set by Amazon. For example, on the return terms and conditions or the A to Z guarantee policy.
Other important aspects to keep in mind when you start selling are shipping, taxes, driving traffic and currency exchange rates. When you take all of these in, make sure to consider whether you will still be able to make money! In other words, does your margin actually allow it?
When it comes to shipping, you have a couple of common options, fulfilment from your local warehouse, fulfilment from an Amazon warehouse and fulfilment from a local U.S. 3PL. All of these options have their own pros and cons. It’s almost impossible to give general advice on shipping, since the right strategy is typically product and retailer specific.
Listing your products on Amazon won’t bring you any sales, you need to find a way to drive traffic. Either within the Amazon Marketplace or via channels outside the marketplace. Don’t underestimate the investment related to driving traffic to generate some sales on Amazon, since, especially in the early stages, you might need to do a lot to win the buyer box in your category.
If you are a foreign seller with limited margins, then currency exchange rates is something you need to keep an eye on. There are solutions on the market that help you collect the money in USD. You can then transfer your money to your home bank account when the exchange rate is good.
Once the store is set up, what else do I need to know as a seller?
Amazon is constantly changing. Take into account new sellers, new rules, more promotion options and more. You should be spending a decent amount of time after you established your account making sure that you keep optimising so that you can win the buy box position.
Optimising your account is very important in order to generate reviews. We have seen that giveaways work well to generate more positive reviews. It’s also recommended to give the moment that you ask for a review some thought. The ideal moment to ask for a review will depend on the product that you are selling.
Besides some of the typical Amazon aspects, I would advise to optimise some of the side aspects of the business and to see whether your financial streams are actually working for you. The question to ask yourself here is whether you are not losing too much money on conversion exchanges rates applied by Amazon on your pay-out.
Don’t forget to stay on top of things like shipping and other service aspects and hopefully your sales volume will grow. If you are using a carrier it might be useful to spend a couple of hours talking to different suppliers to see whether your raised sales volume will give you the opportunity to apply for shipping discounts. You might also want to consider fast shipping solutions like two-day delivery or even express delivery, since some customers might appreciate this type of service.
Beware that Amazon changes its policies around the holidays. Fulfilment rates in the Amazon warehouses change and some product categories might require you to have a certain level of sales volume to be eligible to sell during the holidays. Also, this year Amazon did not take on-board any new sellers in their fulfilment centres just before the holidays. So, if you want to benefit from a prime seller position, make sure you are in the warehouse prior to that deadline if applicable.
Amazon has a major influence on the e-commerce market in the U.S., but don’t underestimate the power of other sales channels and your own branded site.
How about returns and customer service?
Amazon has started to oblige retailers to offer a free return solution. In general, I think that clients who sell via Amazon deal with less returns and customer service inquiries than when they sell via their website. This doesn’t mean that you need to accept returns and offer a domestic solution or pay for international shipping.
In comparison to some European countries, I’ve noticed that American consumers often expect a pre-paid return label. I would recommend that you have a solution for this to avoid a negative review.
Don’t underestimate the 24 hours you have to reply to a customer inquiry. If you don’t answer your customer questions within this time window, it will damage the status of your account. I therefore highly recommended you to make someone responsible to monitor your account, including during the weekends.
So should all retailers sign up for Amazon U.S.?
Not everyone should sign up! Many will fail in becoming a successful seller on Amazon and you will know quickly enough. Don’t sign up without a long-term strategy or if you don’t actually have the time to maintain and optimise it. As mentioned earlier, sign up if you have U.S. customers visiting your current sales channels and your product can compete against competitive prices and maintain a good service level in the United States.