FBA Wholesale, Cheap Beer and How Brick & Mortar Sellers Ruined Amazon

With RA and OA getting hard, massive Amazon restrictions, counterfeit claims galore and no invoices to save you, many Amazon FBA sellers are trying to move to sourcing wholesale ASAP.

I personally thought it would be a piece of cake to switch over but then I learned that the brick and mortar sellers that are now flocking to Amazon have a different way of doing stuff and I want to cover what I have been learning in this post.

I have seen Amazon FBA get crowded.  Really crowded in the last year or so. It is very obvious in the price action of products. The “rush to the bottom”  is extremely fast due to more people trying to supply products to Amazon.

This was/is to be expected. It is basic economics.

While I understand it, I don’t have to like it.

I like me some high ROIs and have pretty much lived and died by the 3 x 1 rule  ( sell at 3 times the buy price and that usual makes 100% profit. Buy at $10, sell at $30.  AZ takes $10 and I make $10 profit) when sourcing. I have found that it is very hard to do that anymore.

I always joke around that RA is dead ( or OA is dead) but it will never die because people will always be able to find arbitrage opportunities. With all the software that is constantly scanning websites, people will find that RA gives the best chance of finding arbitrage opportunities.

Basically you never know what someone’s local store will price clearance products at or what discontinued item you will find locally, so RA will never die.

The problem is that while you can still find stuff like this, you may not be able to sell on Amazon because so much stuff is becoming restricted. ( hint, hint: list that stuff on eBay. Despite what many Amazon sellers think, eBay profit spend just as good as Amazon profits. Actually I am doing this a lot more when I find good deals and am restricted from selling or the packaging is not in “new” shape)

The second problem is that there has been a rash of counterfeit claims and Amazon suspensions.

Some may be natural ( honestly I don’t even know how people make the claims. I have never seen that check box on my options when I have returned stuff to Amazon) but it seems that brand owners are filing claims and other Amazon sellers are doing this to get rid of competition ( while some say that it isn’t happening, trust me, it is)

The problem is that Amazon wants sellers to be sourcing from legit sources. While sometimes a Walmart receipt will work to save a seller, Amazon really wants invoices. They are moving to a total invoice system and nobody knows when the Walmart receipts will no longer work.  

So RA is sort of a Russian Roulette type of thing. You may never have an issue but then again, you could be put out of business in an instance.  This is why many Amazon sellers are looking at wholesale ( or private label).

Enter The Traditional Brick & Mortar  ( and cheap beer)

The word is out that Amazon is a good place to sell products on. Tons and tons of retail stores ( brick and mortars) have opened up Amazon seller accounts. They want a piece of the action.  They know people are buying online and they need to make more sales to add to their bottom lines.

Big deal. So what?

Well they play by a different set of rules than I ( or you ) do.

Hold on, here come that cheap beer reference.

The cheapest beer that a college student can buy is Keystone ( think canned piss) . You know beer is cheap when it comes in a 30 pack.

Well in the retail world ( the brick and mortar) there is a term called ‘keystone pricing”.

Simply stated, keystoning is selling at double the wholesale price.

So they buy at $5 wholesale and sell at $10 retail.

Keystoning is what retailers strive to achieve. ( and most fail at it).

If they keystone, that are making a great profit after overhead.

This works great for selling locally in a store. It is actually my 3 x 1 rule that I like to follow. They are getting close to 100% profit this way.

Like I say, they rarely do this good on all products.

Ok, but where is this going?

Well this is the issue.  They generally don’t change how they do business regardless if it is local or online.

So this is the issue. They aren’t playing by my rule of making as much money as possible on every Amazon sell. They list products, keystone the wholesale price and that is what they sell the product for on Amazon.  

They are happy campers. They also don’t understand Amazon and the fees.

So as long as I have sold on Amazon, I have used the amount of $4 as the minimum fees that Amazon charges on every product that I sell.  With the recent changes in Amazon fees,  it would probably be safer to use $5 as the figure. As I say, there is a $4 nut to bust on every product.

For example, I find something on clearance at Walmart for $1,  I probably need to sell it for at least $5 on Amazon to just break even ( more like $6 now).  This is probably something that most sellers know ( if not, now you know why you are losing money)

So let’s run an example.

Joe Blow Brick & Mortar decides to open an Amazon seller account.  They are selling XYZ widget in their local store. They are paying $5 for these wholesale. So they decide to send some into Amazon.

If they follow their normal way of doing business, they will keystone these widgets.

They will price them at $10 ( double the $5 wholesale price)

Now they don’t understand that there is a $4 (or probably $5) nut to bust with the Amazon seller fees.

So if you are following along at home, $10-$5, is $5.  Then you take out $4 or $5 for the Amazon selling fees which leaves either $1 profit ( not counting the inbound shipping fees that need to come off this) or $0.

Joe Blow Brick & Mortar is selling these left and right and pretty happy because they are keystoning them and think this Amazon thing is the best thing since sliced bread.

They aren’t making anything off of these!  If they were doing this locally, they would be killing it.

You or I am on this listing and we are just shaking our head and trying to figure out how to get rid of our stock because they keep sending in stock and we can’t get ours sold at a profit.

So what use is this information?

Well it is about ASP ( average selling price). FBA sellers love to get a high ASP. The higher the selling price, the lower % the Amazon fees are compared to the selling price.

So say the wholesale price is $20.  Joe Blow Brick & Mortar will price at $40. Now the Amazon fees might be $10, so the profit is $10 ( $40-$20-$10= $10)

Now there is a chance to profit on this product if you are selling against Joe Blow Brick & Mortar.

Here is the issue.  Most FBA sellers hate to invest a lot per unit.  I am not a fan of paying $20+ per unit because of Amazon’s return policy.

If I pay $20 per unit and make $10 profit and get a return, I have to sell 2 units to cover it. Actually the $20 isn’t my issue, the low ROI is. The lower the ROI, the more units I have to sell to cover the loss of a return.  

If you make 20% ROI, you have to sell 5 units to cover 1 return. This is no big deal on some products that rarely have returns but some categories have lots of returns.

So now we know how Joe Blow Brick & Mortar is going to price against us. How do we deal with it?

Before we look at that, let’s look at the other big facts.

It is hard to get wholesale accounts if you are an Amazon seller compared to a brick and mortar.

Joe Blow Brick & Mortar can pretty much open a wholesale account at will.  You and I will have problems getting approved.

So I find these widgets at Walmart. They are on clearance. I list them and can make a good profit below Joe Blow Brick & Mortar price because I got them even cheaper than wholesale.

Now Joe Blow Brick & Mortar is used to MAP ( minimum advertised pricing).  They get pissed that I am selling these for less than MAP and they contact the wholesaler or Amazon.

Now I am not an authorized seller of this and get knocked off the listing or a counterfeit claim against my account. Now my account is in limbo and I am hoping my Walmart receipt will get my account out of hot water.

Now if I have a wholesale account for these widgets, I have to play by the wholesale rules ( like MAP). Depending on the wholesale price, map might not even be profitable after fees and Joe Blow Brick & Mortar might not price over that.

Then here is the biggy. Joe Blow Brick & Mortar probably has a relationship with the wholesaler and probably orders more than just this widget. They may be able to get way better pricing than me and if they get it cheaper, they can keystone cheaper (if there is no MAP) and I can’t ever get close to making money on these widgets.

Dealing With Joe Blow Brick & Mortar

First, I want to avoid Joe Blow Brick & Mortar at all possible.  There are ways to detect these type of sellers.

Sometimes they have a sellers name that screams brick and mortar.

Some only sell MF ( merchant fulfilled). Normally we like to get on listings with no FBA sellers until they contact the wholesaler or AZ and get us shut down.

Sellers with massive feedback is a sign of sellers that operate on low margins and while they may not be brick and mortars, they get better wholesale pricing and will under price you 99% of the time. It is also very hard to get the buy box from these sellers even if you price the same.

Second, you need to focus on ASP. Source products that have a higher cost per unit. That gives you more wiggle room and also eliminates most normal 3rd party sellers.  You can still profit is a seller that keystones jumps in the listing.

Third, think about doing something different like bundling  or multipacking your wholesale products.  Most of the time Joe Blow Brick & Mortar won’t mess with you.  They are too busy and probably only scan the UPC code and will never see your listings.

Summary

More and more traditional brick and mortar seller are bring their wholesale to Amazon at the same time many of us RA/OA sellers are trying to get into wholesale to save our business.  They are literally killing  the Amazon as we have known in the past and Amazon wants this. 

Realize that Joe Blow Brick & Mortar plays by a different set of rules and has easier access to products. They can sell safer on Amazon because they are doing what Amazon wants. We are not doing what Amazon wants.

Use your knowledge of how Amazon works, which Joe Blow Brick & Mortar probably has no clue on, to help keep him from ruining your listings.
Finally, it you will have the most success bringing products to Amazon with no other sellers on your listings.  I you do chose to get on a listing with other sellers of wholesale products, you should only get on listings with 1 maybe 2 other sellers ( seller without massive feedback numbers).  If you get on a listing  with 25 other sellers, you general will be toast.

Many people are doing well with wholesale but the high ROI that many of us are used to is not usually possible with wholesale and most of the reason is due to new sellers coming to the platform that play by different rules and has different goals than most old school RA scanners.

Comments are closed.