By Jack M. Germain

Jul 13, 2021 5:00 AM PT

One of the little-known marketing secrets on Amazon is how seller aggregate organizations drive product and seller buyouts.

These companies can greatly impact the broader market. On the surface, aggregate companies become what amounts to sub-stores within the marketplace.

One such aggregate entity is operated by Ryan Gnesin, CEO of Elevate Brands. His company buys consumer-leading and Fulfillment by Amazon (FBA) brands and helps independent sellers elevate their product sales to full potential.

For both tuned-in sellers and aggressive aggregates, business on Amazon is booming.

The pandemic caused a massive shift to digital/e-commerce during 2020. E-commerce grew 44 percent from the previous year, according to Gnesin.

Amazon’s third-party seller marketplace generated $300 billion in annual sales in 2020. That is a significant increase from $200 billion in 2019.

“It is expected to reach $500 billion within the next five years if not much sooner,” he predicted.

Selling the Business

Pair this e-commerce flood with the whopping 70 percent of online product searches now started on Amazon. That resulted from the marketplace tapping into the consumer’s desire for choice and value first, brand second, noted Gnesin.

Meanwhile, a massive consolidation of hundreds of sellers acquired by third-party aggregators is driving shopper performance. In fact, in the first three months of 2021, aggregators saw 20 times growth in the number of retailers trying to sell their business.

Aggregators acquired more Amazon marketplace sellers in the last three months than the last two years, Gnesin noted.

More than 40 different seller aggregators have popped up, most of which did not exist six months ago. The top three aggregators in the market today are Thrasio, Perch, and Elevate Brands.

Nearly $3 billion poured into these companies since 2019. It continues to grow each week, he said.

Elevate Brands recently secured $55 million in funding and has a green light to go beyond that if needed during its acquisition surge. The company has acquired over a dozen e-commerce brands and is now averaging one acquisition per week.

Gnesin’s company is the only aggregator doing this for four-plus years. The company used to be a seller itself and is achieving up to 10 times growth for its acquired brands within the first year.

Positive Impact

One of the main functions of aggregate sellers is making each of the acquired products more provisioned. Oftentimes, those businesses are run by smaller operators. From Amazon’s perspective, it is a very positive step up for the brands. From a consumers’ perspective, it is a windfall because they are getting better quality products and more of them, observed Gnesin.

Obviously, the operations by aggregators create more capital flowing into the system. That, in turn, enabled the aggregators. When they take over a brand, they improve the product and the quality, along with launching new variations.

All aggregators do not operate the same way. No one business model is used by each entity. On one end of the spectrum, a seller partnering with an aggregator is akin to adding a middle layer between the digital store owner and Amazon’s overall product control, explained Gnesin.

On the other end, the aggregator buys the e-commerce store completely. The seller walks away with the purchase price in hand. The purchasing aggregator owns the product line and integrates it into his overall storefront.

How It Works

The way Elevate Brands operates, all of the digital stores the company purchases are acquired outright. Some of the other aggregators have different models where they buy, for example, 20 or 25 percent of a business and then let the operators continue to run it.

“The logic for those guys is at some point, we will list the business or sell the portfolio,” said Gnesin. “We don’t particularly think that is a great model. “

His model buys these businesses, and the sellers do not stay involved. Elevate Brands owns the business outright. There is no middle layer involved.

“When we buy an Amazon account, we buy the trademark, we buy the Amazon listing, we buy the website, we buy the supply chain, and we buy the relationship with the factory,” he told the E-Commerce Times.

That purchase includes taking over lock, stock and barrel the whole thing. So the seller is no longer involved in any way.

From a legal standpoint, it is a clean and simple transaction. Elevate Brands switches the seller’s LLC with the aggregator’s LLC and essentially takes over everything else, he detailed.

Other aggregators choose to retain the seller company’s management team. Some keep the previous owner as an employee with assigned management duties.

With the acquisition of a larger company, Gnesin finds that some of the employees want to stay on. That can benefit the new owner, so they take them on as employees.

“We have found that when you just pay someone $10 million, they typically do not want to be an employee for you,” he added.

Rebound Sellers

Oftentimes, entrepreneurs on Amazon who are successful at growing their digital store’s business see return opportunities in building another attractive buyout target for aggregators. They return to Amazon with a new product line and start over again.

“They cannot compete directly with the business, but they can go into any other product line. Ultimately, you might wind up buying them out again if they are successful down the line. That’s the idea. We encourage them and support them to do it,” Gnesin said.

The great thing about the Amazon industry is that constant innovation drives success. Product ideas do not dry up.

Case in Point

Hundreds of new sellers come onto the Amazon marketplace every year with new and innovative ideas. Gnesin does not see that changing.

For example, he recently came across a business and bought it. The product that caught his marketing eye was an odd-shaped pillow.

The seller came up with a unique shape that shoppers went wild over, generating 20,000 five-star reviews.

“The sellers have a patent on it. They just came up with something novel that was kind of a white space in the market. They looked like a great business, and we paid them for their business,” said Gnesin.

Plenty of opportunities still exist. Gnesin thinks the opportunity landscape will only expand because the number of consumers coming to shop at Amazon is increasing.

Shoppers are Changing

Gen Z and millennials are approaching Amazon purchases with a new swag. That new element is another factor that strengthens Amazon’s retail future.

These generational shoppers are less intent on finding a specific brand and more focused on buying at the best price for premium brand purchases, according to Joshua Kreitzer, founder and CEO of Channel Bakers. His company helps sellers on Amazon and elsewhere optimize their sales successes.

“Baby boomers were very brand loyal. You were either a Ford guy, or you were a Chevy guy,” Kreitzer told the E-Commerce Times.

Knockoff brands and non-brand overseas sellers also tend to do better with Amazon’s growing and more varied shopping demographics. The shopping trend shows a desire for a good price without deference to which brands they buy when they come to Amazon.

Kreitzer’s company has a mission of helping brands grow their sales and bolster their influence in their retail and e-commerce channels. His business is built on premium brands with clients like Samsung, Calvin Klein, and other large household names.

Now, with the future of retail premium brands, he and similar marketers are really going to have to focus on content and new media that shoppers have discovered, he noted. Today’s shoppers are much more digitally oriented. So the marketing focus is now heavily reliant on video. Sellers’ content needs to be relevant to that new audience expectation, on Amazon as well as on other sales channels.

“You cannot just put a normal, boring commercial on television and video. You have to do your content in a way that attracts shoppers. Advertisers must tell their product story in a reinvented message,” said Kreitzer.

That is the future of retail. In order to win at e-commerce as a premium brand, sellers and marketers need to figure out how to do that, he advised.

Storytelling Is Key

With shoppers’ energized focus on digital, brands have to tell their story and help the next generation understand why they might, for instance, be paying higher prices.

“The future of marketing is e-commerce for sure,” observed Kreitzer. “But telling your product story in a way that is relevant and compelling to tomorrow’s shopper is essential.”

That storytelling mantra is a big part of Amazon’s overall marketing strategy, Kreitzer believes. Video streaming is the entertainment mode of the future. Amazon is priming customers to flock to its online digital warehouses for more than just marketplace purchases.

“Amazon is becoming where everybody wants to go for entertainment videos as well as products. It is a one-stop shopping virtual platform,” he offered.


Jack M. Germain has been an ECT News Network reporter since 2003. His main areas of focus are enterprise IT, Linux and open-source technologies. He is an esteemed reviewer of Linux distros and other open-source software. In addition, Jack extensively covers business technology and privacy issues, as well as developments in e-commerce and consumer electronics. Email Jack.

Source link