I predicted in October of 2018 [1], that in 3 years Amazon will start flying freight directly from China to US fulfillment centers and cut out the middlemen (FBA sellers). Since then Amazon has been on-boarding sellers in China at a rapid pace.
However one insight into the reason is embedded in this anecdote: My friend was asked by a Chinese supplier to sell a thing on Amazon. But the seller then went on to try and transfer all of the inventory risk, and customer support risk to my friend. They then also refused to give a unique license to the product for Amazon to my friend and also undercut their offer to my friend with another random person in the USA. 6 months later the supplier listed V2 themselves on Amazon once the first person had built them a market and they could copy pasta all the english product info. Seller was left half their V1 inventory and had to sell at a loss to clear it.
Luckily my friend only burned the Amazon seller fee during the trial period and their time.
This is a deal-breaker always for these types of arrangements. I've walked away after months of negotiations when suppliers renege of this key part of any distribution agreement. You cannot be in a position to build up someone else's product or brand, and have them take it away from you at their own discretion, with zero compensation to you. You should not also be diluting your marketing efforts for said product if the supplier is handing out distribution rights like candy.
Get exclusive agreements always. You'll likely need to pay some sort of minimum guarantee, but you can negotiate a rolling start, and if the product is not present in the market, you have leverage to get terms in your favour (ie, exclusive to you, but no sales guarantee for the first 6 months, to "test out the market"). This should still be outlined in writing and signed by both parties.
Ideally, I would love to begin some sort of revolutionary alliance that tries to fight off the behemoth Amazon and how they use their market size, analytics, and predictive analysis to see what's hot, and then either buy or make it at a cheaper cost and a lot of times---a better quality.
They become big because the competitive edge is not in the supply, it's in the demand, as in, they have access to a customer base. Of course, one can't sell complete crap, supplies/products should fulfill a certain market demand, but supply is always secondary to having access to customers.
If you're thinking about becoming a trader or distributor, start backwards from your potential customers. Who are they, what do they want, and what price point and average buying quantity makes sense for them. If you're trading B2B that is quite different from sourcing from a supplier to sell direct to consumers in your market. In the former, your customer is the physical retail stores (or their equivalent), in the latter it is actual consumers themselves. The usual customer profile work should be done here.
Once you have an idea of your customer profile, then you can start sourcing. Luckily there are very few barriers to entry in 2021, you can google for product names or categories, find the suppliers online (China or otherwise), and you can just email them to inquire on their prices. If you're starting out, be a simple as you can:
a) What are their prices and minimum order qtys
b) Can they waive the minimum order qtys while you test out the market on the first few orders (suppliers always have excess stock on previous production runs. You can do them "a favour" by buying that - they recover their costs, you get things for cheap).
c) Pre-sell if you can. That could be as simple as walking to stores with a catalogue, or just a sample to show them. Then collect pre-orders from 50 customers (ideally with some money down), use that to make your first supplier purchase.
d) Ideally, you have exclusive rights to the distribution for several years. When you're starting out, you don't want to spend the money to "buy" these rights, so again, it becomes a negotiation. The supplier isn't selling in your market, so you're helping them reach a wider audience. It's in their interest to support you.
e) Make sure besides exclusive rights, you get collateral support in terms of marketing materials, graphics, ads, freebies, etc. This stuff is huge when you're building up a customer base.
The best structure is pre-sell, purchase from your supplier to fulfill existing orders, then the stuff arrives and you just pack it off straight to your customers. Rinse and repeat. High volume items give you about 10-15% gross margins, but standard is about 30-40% gross margins as a trader. Again, all depends on how you negotiate your total costs. Freight is often a huge win -- get some good freight charges, and your profit can literally double on a specific shipment.
Ideally in your customer identification process, you'll have found some product ideas that they'll want to buy. You are valuable because:
1. Your customers don't want to buy the volumes a supplier would require, they just want a small subset of that total. They're happy to pay a larger price for smaller quantities.
2. Suppliers don't want to sell bits and pieces, they like having someone buy large quantities from them. So they'll give you a good price for bulk purchasing. They also don't want to do the legwork to find the 100-1000 smaller customers to fill a large production order.
Your profit is the difference between the two numbers. So you do the legwork to get that upside.
If you're attempting to sell on crowded locations like Amazon, then you will need to spend/invest on ads to drive the purchasing from you (vs. someone else with the same or similar products). Most marketplaces reward sellers with existing sales volumes, as their algorithms figure you've completed sales before, you'll continue to do so. So that's a game you do need to play to start building a seller reputation. If you have your own Shopify-or-whatever site, it's the same, you'll need to do FB/Google ads to drive that initial customer acquisition.
There's a lot more info, but I'll stop here for now. Happy to write more if folks are keen.
How are exclusive rights promised by a manufacturer in China enforceable by a small time buyer not from China? What is the recourse in the event it’s found out the manufacturer violated the exclusivity agreement?
*Edit: "Who else do you supply to" is a very common part of interacting with a supplier, and most of the time they are chomping at the bit to share their "famous customer list" with you. In fact, some suppliers even have pages on their website listing who their "authorised resllers/distributors" are. Having a chat with any of the others helps, and like any business relationship, it's a human relationship with some trust involved. You back things up with legal protections, but in the end, business is about the human aspect of things.
Interesting. I always heard stories about designs being copied and sold under different names in very short time after releasing a product. And in Belgium, you have the EU courts to back you up in simple cases, but I was not aware if its similar in China (unless you had a certain amount of weight to throw around like a F500 company or something).
BTW: I was being too complicated with the email in the profile. It said "me at my username dot org", I now changed it to just say mkhalil instead of "username". It's me @ mkhalil.org. Would love to keep in touch!
Thanks
All the evidence I see indicates Amazon does not want to be this middle man. Amazon wants to be the payment and platform middleman, that’s where all the profits lie due to infinite scale-ability and near zero marginal costs. They removed the ability to let you filter search results for items sold by Anazon.com years ago.
Amazon does not want to be in the 2% profit margin retail business where they are liable for inventory risk and other liabilities like product safety, etc.
They want to be like Visa and take a cut of each transaction. I would too, considering Visa’s profit margins versus Walmart’s.
That feature is still available on the amazon.com site as I write this
I definitely remember 10+ years ago, being able to restrict searches to items sold by "Amazon.com" by clicking the check box. Then they gradually removed it for certain searches. Sometimes, the option to filter by Amazon.com would show up, and sometimes it wouldn't. I thought I was going crazy for a while. Then I realized what they were doing, and then in a few years they got rid of the option completely.
Not that it would make a difference anyway, since Amazon commingles inventory with other random sellers so you never know which supply chain you're actually getting the item from.
A big risk factor is choice paralysis. I know legitimate purchase intent browsing/searching gets derailed when customers see too many choices and lose confidence. Did I specify the wrong search criteria? Am I buying the right one of these 500 near-identical items? Is there a better deal I'm missing? Should I check five other shops?
If marketplace sellers practiced good curation, this risk is reducible, but I suspect marketplace platforms prefer large numbers of sellers and massive inventory count to convey vast selections (of things you don't actually want).
They will let sellers scout products, and then squeeze them out after they have a product that's proven to move. It's better for Amazon this way, you can externalize lots of risk while still making a fat commission + assorted fees.
Most box retail seems to clone high-sales-volume items.
Amazon can afford to clone the long tail, because they'll still make profits off it.
It’s not a new paradigm.
Cheaper consumer good manufacturing in the US is gone for good.
Has Amazon ever shown any indication of raising prices after monopolizing a market? As far as I can tell, the more they dominate a market the lower their prices.
Amazon does seem interested in monopolization, but mostly for the ability to squeeze suppliers into even tighter pricing- not turning around on consumers. Moreover, similar arguments were made for years about Wal-Mart and never materialized. Increasing market share seemed to go hand-and-hand with "Everyday Low Prices".
Who knows. Maybe it really is their secret strategy. One day the shoe will drop, and Amazon will start bleeding consumers in the markets they've grown to dominate. Somehow I doubt it though, and so far their behavior gives zero indication of it.
on the other hand,that means amazon will be competing directly with Aliexpress ,and might trigger some kind of CCP response