2020 was the year a new kind of business was born: Amazon seller acquisition companies. The eCommerce boom brought on by the covid effect, saw retailers closing their physical sites to operate solely online, and others, taking the opportunity to take their entrepreneurial skills to the test and entering the world of start-ups. So, what role did FBA play in all of this?
How FBA works
Fulfilment by Amazon, more commonly known as FBA is a business model where businesses acquire successful Amazon sellers before scaling them up. Ecommerce sellers take advantage of the corporation’s vast warehouse space to store and ship the products that merchants sell through their virtual store on the Amazon website. Most customer service issues take place through Amazon and sales profit gets transferred to the seller’s every two weeks.
How the acquisition model works
Most of these companies operate through buyouts. They buy the Amazon account and intellectual property from a seller that has generated a healthy profit and has overall proven to be successful, for example, the original seller turning over 3 – 4.5 times its annual net profits. Sometimes an acquisition company will offer a revenue-share model with the seller; sometimes the seller will exit the picture entirely, the acquisition company takes on the purchased Amazon brand and personalises it to become a new brand.
In Europe, there are several companies focused on Amazon Marketplace seller acquisitions. In November 2020, both Heroes and Razor raised 55million and 25 million euros to acquire and scale Amazon brands. In 2021, the US-based company Thrasio recently fortified its leading position in Europe through the acquisition of Bonstato, and the promise of more eCommerce businesses to come. The company which has now reached ‘unicorn’ status increased its budget to expand over Europe. The Berlin Brands Group also invested 250 million euros and Branded raised 124 million.
While this model isn’t new, many buyers are taking advantage of last year’s surge in eCommerce, with over 25% of brands believing the pandemic has led to a ‘technical revolution’ for the retail industry. As we head towards the inevitable demise of the high street, many sellers are taking their brands online. Independent sellers are met with the chance to claim a percentage of their new post-acquisition earnings, whilst others see a direct cash injection and the chance to be elevated of the pressures of operating your own business.
Even though acquiring Amazon businesses is still a novel concept, it foreshadows a broader shift in what it means to sell on Amazon. Most think of these sellers as small businesses. But as more capital saturates the acquisition space, it isn’t hard to imagine sellers launching an Amazon business with the idea of selling it to a larger company in just a few short years.