Friday, March 16, 2012

Resistance Is Futile!

Amazon wants me. All of the objections that I raised about the Amazon Marketplace last September are still true, but I did end that post with “I’ll revisit this idea going into next summer’s doldrums.” Now here we are.

150 million unique monthly visitors hell-bent on shopping add up to one huge reason to join the Borg collective. Amazon recently made it a little easier to sell out. And what man can say no to 7 of 9?

First, the array of “revenue share” points has been winnowed to 15% across the board (except for jewelry at 20%, but I would not list that). Second, Amazon now handles the initial setup; the complexity of that was a big turnoff last time. The 40-product minimum is a burden, but I could easily pad that requirement with Switchables covers.

Drawbacks besides the logistical ones that I wrote about last September:

•    2 million other merchants are cutting one another’s throats in the same space, and most of them are more ruthless than I am.
•    Amazon uses its participating sellers’ sales and pricing data to compete with them directly. You will soon find your “host” moving in on your successful products.
•    Adding my best products enhances Amazon’s appeal, not mine, while Amazon’s name weakens my brand. Customers don't understand the difference between buying from Amazon and buying through Amazon. I don’t want to be a mere distributor in the collective.
•    Amazon owns the customers who buy through their website and forbids its sellers from marketing to them – not a big practical concern, since I do almost no direct marketing, but it bothers me anyway. I assume that Amazon’s Terms of Use (such as their privacy policy) supersede mine if those customers are its property.
•    Amazon prevents sellers from controlling product images and descriptions by applying standards to each UPC.

To succeed, one must have an appealing product at a competitive price that Amazon and its merchants aren’t already selling in any quantity. The UPC code requirement rules out my more offbeat items.

A recommended strategy is to keep your bestsellers for your own site, and use Amazon to test new products or liquidate losers. That’s one argument in favor.

Internet Retailer magazine said that sellers who have fewer than 40 transactions per month pay only 99 cents per sale. Forty doesn’t sound like much, yet it would be a 40% increase over my typical 100 monthly sales. Can I suspend my Amazon products when I reach 40 sales? Their salesman wants to sign me up as a “Pro Merchant”, which I think precludes the 99-cent small seller option. He wasn't interested in discussing the small-potatoes approach that interested me.

Mostly, the 15% haircut is a killer. Consider what happens to each merchandise dollar that I ring up. A bit over 50 cents pays for the stock. Twenty cents goes into my pocket, and I have to pay another 3 cents or so in payroll taxes. Ten cents goes to advertising. Payment processors take 4 cents. That leaves 13 cents to cover everything else – packing and printing supplies, licenses, annual taxes and fees, professional services, Internet and telephone, etc. My actual profit is whatever’s left after I meet all of those miscellaneous expenses (which obviously ain’t much). Amazon covers payment processing costs, so that reduces their take from 15 to 11 cents per dollar. That would leave me only 2 cents out of every dollar for miscellaneous expenses and profit.

OK. For 2 cents to do the work that 13 cents is doing now, dollars would need to increase by…well, I don’t know how much. It’s less than sixfold because some of my expenses are fixed (advertising would not rise proportionately, for example), and because the 11-cent Amazon expense would only affect the Amazon portion of total sales. But it’s definitely a lot.

Ultimately, though, it just feels wrong. Curio City’s niche is selling products that you don’t find in mainstream retail. Amazon defines the mainstream. Joining the mainstream contradicts my core concept. So, for better or for worse, I rejected their pitch again – permanently, this time.

What next? I do want to jazz up my game this year without risking a lot of money or radically changing the way I do business. Growth is already returning to Curio City as the economic recovery finally trickles down to the middle class. How do I enhance that without risking it? Facebook advertising didn’t work. I decided against selling on Amazon. What next?

Next week: The dread Ess-Eee-Oh puts in another appearance.

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