Amazon's Third-Party Sales Explode – The Fool Motley

Amazon (NASDAQ: AMZN) In his annual letter to shareholders this year, CEO Jeff Bezos revealed some interesting data on third-party sellers in the Amazon market. Last year, third-party sellers accounted for 58% of all physical assets sold by Amazon. Bezos also provided the percentage of third-party sales going back to 1999, while they accounted for only 3% of Amazon's retail business.

Amazon's third-party merchants sold $ 160 billion worth of merchandise to the market last year. eBayof (NASDAQ: EBAY) A gross merchandise volume of $ 95 billion in 2018. In addition, the breadcrumbs of Bezos allows investors to get a good idea of ​​the growth in absolute numbers of third-party sellers. Interestingly, in the past four years, the volume of raw goods from third-party Amazon has increased to about $ 95 billion.

In other words, Amazon has added an eBay to its business in four years.

Meanwhile, eBay has recently struggled to increase its volume of raw goods. Amazon's third-party sales grew at a compound annual growth rate of about 25% over the four-year period.

Here's how Amazon managed to stop eBay and completely dominate sales growth to third parties.

Improve the customer experience

Amazon has made significant investments to provide a superior online shopping experience. It starts with Prime, which offers a two-day shipment on over 100 million items to the Amazon market for a flat fee of $ 119 per year. (Prime also comes with many other benefits.)

Amazon has more than 100 million Prime members worldwide. eBay, for reference, had 179 million active buyers in 2018, who spent an average of $ 530 last year. This is in fact comparable to estimates of non-core members spending in the United States. Non-members spent an average of about $ 600 last year, according to Consumer Intelligence Research Partners. But Prime members in the US spend more than twice as much, or US $ 1,400, which demonstrates the power of the loyalty program.

Amazon has quickly extended Prime benefits to third-party merchants through its Fulfillment by Amazon (FBA) program. Amazon will store and ship items for sellers on its platform in exchange for a small fee. Not only is the program convenient for sellers, it also encourages customers to expect the product to arrive quickly and stored appropriately.

Amazon's massive investments in warehouses and shipping facilities have not always satisfied shareholders, but it's hard to complain about long-term results. This is especially true compared to the results obtained on eBay, which had a hard time attracting merchants. Instead of providing services and tools to facilitate sales, eBay has increased the incentive for sellers to fulfill their orders faster. Although it is a little capital model for eBay, it has not created much capital gains for shareholders.

What's next for Amazon?

Amazon continues to provide new tools to third-party vendors to help them manage their businesses. Bezos points out that the company's tools allow salespeople to "manage inventory, process payments, track shipments, build relationships, and sell across borders." Since the beginning of the year, Amazon has released 50 new tools and services aimed at sellers, including brand analysis, global registration for sale in many markets and the content of e & # 39; 39, e-learning to help sellers improve their business. It is also exempt from BAF fees for new products.

But one thing that could further increase the amount sold by third-party sellers on the Amazon platform is if the company decided to offer its own shipping service. The reduced shipping costs for Amazon's third-party sellers would make even more products eligible for Prime, while potentially reducing the shipping costs of merchants who do not use Fulfillment by Amazon. The company has already hinted at its intentions and is building an infrastructure to do it.

Providing vendors more than just a market has been key to Amazon's success in attracting and increasing third-party merchant sales. Amazon collects fees from these sellers and the scale of its activities allows it to generate a significant profit. It is therefore not surprising that analysts value the company's third-party market at more than twice the value of its own retail operations.