By Tom Stabler, Head of Deal Sourcing at SellerX
In 2021, the Amazon aggregator industry had a breakout year due to a variety of factors including but not limited to the pandemic accelerating online consumer spending, record-levels of fundraising, and a supportive macroeconomic environment (low interest rates, low inflation, high consumer confidence, etc.).
However, in 2022, the Amazon aggregator experienced a slowdown as it dealt with the various challenges that hit the broader eCommerce sector such as a shift in consumer spending when pandemic induced restrictions were lifted (both towards services as well as brick-and-mortar retailers), supply-chain disruption (high shipping container costs, significant port congestion, and significantly worse macroeconomic backdrop (high interest rates, high inflation, low consumer confidence, etc.).
Now, looking ahead to 2023, what are Amazon aggregators looking for when evaluating prospective Amazon sellers to partner with? Here are five critical elements that any seller thinking about exiting their business should keep in mind:
1. Products and Niche
When assessing a new brand, the very first thing any Amazon aggregator will look at are the products themselves. At SellerX, we look to acquire brands that operate in “enduring” or “everyday” consumer product categories or niches that show sustainable demand trends and are unlikely to be considered a fad or trendy.
For example, there will always be a consumer need for kitchenware, art supplies, or basic “essential” sportswear whereas items like covid masks, electronic gadgets, and fashion -oriented clothing are much more susceptible to be temporary fads and/or get disrupted.
2. Brand Equity and Competitive Positioning
Aggregators like us need to see clear evidence of high customer satisfaction for your top products relative to competitive offerings. For instance, we always look at a brand's price positioning relative to their competitors.
If a brand is a price and review leader in their respective product niche then their positioning would be considered strong as they’ll be more likely to be able to sustain profitable growth, even during turbulent times. In addition, we also consider the seller’s “brand equity”. If the seller has built a brand with a real following, then this often means there is more potential avenues for growth such as via geographic or channel expansion.
However, it’s important to note that this should be demonstrated by both quantitative as well as qualitative factors such as customer testimonials, branded keyword search, off-Amazon traffic, repeat purchase data, and social media following.
3. Financial Profile
Of course, the financial profile of a business is always one of the most paramount elements in our decision-making criteria when making any investment decision.
At SellerX, we typically look to acquire brands that generate at least $3 million in annual sales with at least 20% profit margins and positive historical growth trends.
However, even if you’re an Amazon seller that doesn’t fit the above profile, we encourage you to reach out as we have acquired businesses outside this scope before if there is a complementary fit with our portfolio and worst-case, we’ll hopefully give you some helpful advice that will aid you in maximizing the value of your business whether you’re looking to exit now, sometime in the future, and/or just curious about the valuation of your business!
4. Operational Complexity
As a general rule of thumb, the simpler, the better; that is, brands with lower operational complexity are on average more attractive for Amazon aggregators to acquire because it means that the likelihood of a smooth ownership transition with minimal disruption to business performance is higher.
Prior to exiting, brand owners should consider whether there are any measures that they could implement to make the general management of their business easier such as cutting unprofitable SKUs, outsourcing certain manual tasks to virtual assistants, and simplifying their supply chain or operational setup.
However, we appreciate that all brands come with their own unique elements of complexity and therefore, we believe it’s critical to always customize any exit solution to each seller based on their unique situation and business needs.
Prior to selling, brand owners should make sure they are fully up to date with all products, trade, legal, and Amazon-specific compliance requirements (as well as any other laws or regulations related to the products being sold).
This includes things such as but not limited to appropriate supplier documentation, proof of appropriate duties and taxes treatment, brand registry, adherence to Amazon’s seller’s policy and code of conduct, and intellectual property documentation (trademarks in appropriate geographies and patents if applicable).
Naturally, certain product categories such as consumables tend to have a higher compliance burden than others and would require additional requirements to be met; for example, the Food and Drug Administration (FDA) for supplements in the US or the EU Cosmetic Products Regulation (as country-specific laws) for skincare products in the European Union.
About The Author
Tom Stabler is the had of deal sourcing at SellerX, europe’s leading aggregator of e-commerce businesses, raised approximately $500 million in debt and equity financing led by Sofina, funds and accounts managed by BlackRock, and Victory Park Capital, with participation from a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) and existing investors. SellerX has a unicorn valuation on a pre-money basis and has raised more than $750 million to date. Visit www.sellerx.com or click the link here to reach out the team.