With Amazon announcing its sure arrival on our doorstep, Dean Salakas, chief executive of party supplies retailer The Party People, contemplates how his business will be affected and says that Amazon won’t really hurt it.
I heard a statistic that 43% of online shopping in the US is done on Amazon. That is a huge problem that I don’t think my fellow online retailers realise this. In fact, everyone I speak to about Amazon thinks they are ready but if the US is anything to go by, 43% of you could be wrong!
When I started to break it down, I realised that this 43% is across all retail, so I suspect that some products will be hit harder than others. I am sure there are some products where Amazon has 80% market share and others where they have 20% or even 0% but what are they?
The answer for me started to unravel when I looked at our selling on eBay. Our average order on eBay is $43 while on our website it ranges from $80 to $120, depending on the time of year.
We have worked hard to get our average order higher on eBay with no success despite the many eBay experts that tried. We believe our poor average order on eBay is due to the fact that consumer behaviour at The Party People is one where they like to buy 10 to 20 items in their basket from the one seller. The majority of our items range in price from $1 to $15 generally resulting in it being more efficient for them to shop my website (or any online party stores website) than my eBay store. When we broke this down further we noticed that most of our eBay baskets were one or two products with our highest value products like costumes.
This leads me to believe that marketplaces are generally not great for people who buy multiple low-value products for a specific need (e.g. party supplies). Likewise, marketplaces are great for products where there is a high value, single product purchase (e.g. costumes).
Another scenario where marketplaces are great is when you want a large volume of one product which is the only time we really see customers shopping with us on eBay. Still, they are buying one item, just lots of them so the purchase value is high. This theory will be enhanced with Amazon who will not FBA anything under $15 but will over $15 which means they don’t do low-value products well, so they leave it to other retailers, but what they do, is moderate to high-value products well.
I suspect that The Party People is insulated from Amazon to some extent (not completely but at least to the extent that we will not lose 43% of our market to them) but similarly I suspect Party People will feel the brunt from Amazon when it comes to costumes. Sure we can supply costumes to Amazon in the short term and profit greatly, but in the long run when they go direct, we are going to find ourselves complaining that we helped establish what will be our major competitor.
Some companies can solve the issue of Amazon going direct by vertically integrating and building equity in their own brands so that Amazon has no choice but to stock their product. If you can do that (such as some of our great fashion brands), I would suspect, Amazon will be the best thing since the search engine since they will grow the industry, offer another channel, increase brand exposure and many other benefits.
Is The Party People really insulated from Amazon and is it doom and gloom for costumes? What other industries or sectors of online retail are safe and what are not? Continue this conversation in the comment box below with your views.